Your credit score is used by lenders as an indication of trustworthiness. When you apply for a loan or a line of credit, lenders use this number to help them predict how likely it is that you will pay back your debt on time.
When you have a high credit score, you appear much more trustworthy to lenders. When your score is on the lower side, it starts making it more difficult to borrow money.
However, having a bad credit score can affect more than just your ability to qualify for an awesome rewards credit card. It can have a very real impact on your life.
Let’s take a look at how your credit score can make your everyday life easier or harder depending on your credit health.
1. It Can Make Your Bills More Expensive
Having a low credit score doesn’t just impact your rates when it comes to getting loans. It can also make your bills more expensive with companies you do business with. For example, utility companies, cellphone providers, and insurers might require that you put down a deposit, charge extra fees, and offer you less than stellar rates.
2. A Bad Credit Score Can Keep You From Buying a Home
You don’t necessarily need a perfect credit score to rent or buy the home you want. However, a bad score can mean that you don’t qualify for a mortgage or that you struggle to find an apartment you love.
3. It Impacts Your Mortgage Interest Rate
When it’s time to apply for a mortgage, it’s best to have the highest credit score possible. The closer your score is to perfect, the better loan terms and rates you’ll be offered.
Most mortgages are amortized loans. This means that most of what you’re paying for the first many years of your mortgage is largely just interest and hardly any principal. When your interest rate is high, it means that the total cost of buying your home is substantially higher.
4. Your Credit Can Impact Your Personal Life
If you’re not compelled by financial reasons to have a good credit score, you might also want to think about your personal life. A recent survey from Bankrate found that nearly four out of ten adults said that a person’s credit score would impact whether or not they were willing to date them.
5. It Changes the Way You Pay For Things
When you have a good credit score or even an average credit score, it can help you get preapproved for cards that offer cash back or rewards points. If your credit isn’t great, it can mean you don’t qualify for the best cards and can limit your ability to use credit cards at all.
If you have a low credit score and don’t make payments on time, your lender might decrease your credit limit. They also might decline your request for a lower APR on an existing card or for a credit line increase.
6. It Determines Whether You’re Approved For a Loan
There’s a good chance that at some point in your life you’ll want to take out a loan. Whether it’s an auto loan or a personal loan, having a good credit score will help you borrow money on the best terms. On top of that, a low enough score could make it difficult to get a loan at all.
(Are you shopping around for an auto loan? Check out our Ally Bank auto loan review here.
If you do apply for loans when you have bad credit, you’ll want to watch out for steep interest rates and predatory lending practices.
7. A Bad Credit Score Could Keep You From Getting Hired
In most states, employers have the right to run a credit report on people they are considering hiring. While the credit report that your prospective employers see isn’t identical to what lenders see, they still might find information there that makes them hesitant to hire you.
Employers run credit reports for a number of reasons, including reducing the potential for embezzlement and theft, assess trustworthiness, and reduce liability for negligent hiring.
8. You Delay Building Wealth and Even Retiring
When you think of the ways that having a lower than average credit score impacts your life, you probably think about the more short-term issues it creates. You might know that having bad credit can make it hard to get a loan or to rent an apartment, but the less obvious reality is that it can have a long-term impact that adds up over time.
For example, if have a lot of high-interest credit card debt, it gets in the way of your ability to save money or invest money. The higher your interest rates are, the more money you’re putting towards servicing debt and the less money you’re putting into assets and equity.
The impact of having bad credit can have a snowballing effect on your financial life. Paying what seems like a little extra in interest each month might not seem like something worth fretting about. However, every dime you put towards debt rather than building wealth is having a negative impact on your future retirement plans.
(Are you wondering if you can get away with retiring early? Learn more about the FIRE movement here!)
Improving Your Credit Score Can Improve Your Life
As the old saying goes: money can’t buy happiness. However, perhaps a reasonable addendum would be: but having a bad credit score can make happiness harder to obtain. From renting the apartment you want and getting that job you need to relationship issues fueled by money problems, having bad credit can make everyday life a lot harder.
Did you find this article about how your credit score impacts your everyday life helpful? If so, be sure to check out our library of credit resources here!
How has your credit score impacted your life? Let us know in the comments below!