Why your credit score matters more than you think
- Posted: May 4, 2019
When it comes to credit scores, many consumers falsely believe that their credit score only matters when applying for a new mortgage, a new car loan or applying for a new credit card. Loans with larger amounts and lower interest rates are typically given to consumers with higher credit scores which indicates their ability to repay the debt consistently and on time.
Beyond just a mortgage or auto loan, there are several surprising ways that can be affected by your credit score. Understanding money management and credit is the key to creating a solid financial future and lifestyle. There are a number of ways your credit score matters:
1. Utility, Cable and Phone Bills
When applying for new utilities like electricity, a cell phone or gas bill, a low credit score may affect your ability to open a new account. Having a lower score could also mean higher utility bills. Utility contracts are in fact a form of credit. Companies are extending service to you in advance with the expectation that you will pay for the provided service in a timely manner. These utility companies base their decision on whether a new customer must make a deposit for service based on their credit score. Customers with lower credit scores are viewed as more of a risk in repaying their debts. If you’d like to join a major cell phone provider for cell phone service, a low credit score may require opting for a month-to-month plan, whereas a higher score will mean far less hassle and may even yield discounts on data plans.
2. Getting a Job
When it comes to searching for a new job, your main concern may be polishing your resume and creating the perfect cover letter. However, many people overlook the fact that many Human Resources departments may check your creditworthiness as part of the hiring process. While employers are not allowed by law to gain access to your FICO credit scores, they are allowed to run what is commonly known as an employment credit report. This report does not reveal a three-digit credit score. It does however, provide public record information such as judgments, foreclosures and tax liens. It may also reveal late payment that includes up to seven years of history.
3. Auto Loans
When it comes to auto loans: the higher your credit score, the better your loan. Average or higher credit scores will vastly affect the overall cost of financing a car. You will be offered lower interest rates thanks to being seen as a lower risk consumer to prospective lenders. In addition to factors such as credit scores and credit history, lenders may also consider your debt-to-income ratio, the loan amount applied for and your down payment. Lower credit scores may require larger down payments to secure a loan.
If your current credit score is 700 or higher, congratulations! Continue to practice sound judgment when it comes to your credit. If your credit score is lower, raising it should be a primary goal. This will require creating a plan of action that includes paying your debts on time, keeping a lower credit utilization ratio and reducing the number of new accounts you open.
This is the most important and significant loan of most people’s lives. The amount of interest paid over a 30 year mortgage is staggering, and so it is critical that you get the absolute best interest rate possible. And that means having the best credit score possible. Without a credit score near the 730 range, you will likely be paying significantly more interest over the life of your mortgage than you should be. For example, on a $300,000 mortgage you would stand to pay a whopping $64k more over the life of your loan if you could only get approved for a 5% interest rate instead of the 4% rate reserved for those with excellent credit.