Your credit score and credit history have a huge impact on your life. You might already know that credit scores impact your ability to get a loan and how much it will cost you. But did you know that your employment, cell phone bill, insurance and your ability to get cable could balance on your credit score? Find how credit impacts your life in big and small ways on a daily basis below.
How Does Your Credit Score Impact Your Life?
Credit scores play a huge role in your financial life. They help lenders decide whether you’re a good risk. Your score can mean approval or denial of a loan. It can also factor into how much you’re charged in interest, which can make debt more or less expensive for you.
But credit scores don’t just come into play when you’re looking for financing. Many people use credit scores as a way to evaluate you as a person.
Whether You Can Get a Place to Live
Landlords, property managers and rental agencies typically review potential tenants’ credit reports. They look for a pattern of missed payments or other negative information on your credit reports that indicate you may not pay your rent.
If you have bad credit, the landlord or property manager may require you to pay a larger deposit or get a cosigner. They might reject your rental housing application altogether.
Whether You Can Get or Afford a Mortgage
Mortgage lenders review your credit scores and reports from the three major credit bureaus as part of the application process. In most cases, a mortgage loan is much larger than an auto or student loan, so the review process is much more detailed.
The score you need to qualify for a mortgage varies by lender, loan type and the general housing-credit market. But the higher your credit score, the better your chances of approval. You also stand a better chance at getting a lower interest rate if you have good credit.
Here’s an example of just how much your credit can impact your mortgage. A lower credit score can result in a higher interest rate. And just a small change in your interest rate can mean a much more expensive home.
- A $100,000 mortgage at 3.92% interest for 30 years equals a monthly payment of $473 and a total cost of $170,213.
- Borrowing the same amount at 4.92% interest for 30 years equals a monthly payment of $532 and a total cost of $191,499.
- Just a 1% increase in interest generated a $20,000 increase in cost over the life of the loan.
Your Ability to Buy a Vehicle
Your credit scores influence the auto loan rates available to you. If you have an excellent credit score, you’re likely to qualify for the best loan terms available. If you have very poor credit, you may have trouble getting a loan for a car at all.
Some lenders will work with people with poor to fair credit. However, the interest rate you pay on your auto loan is typically directly related to your credit score. As with the mortgage example above, a lower score—and thus high-interest rate—can significantly increase how much you pay each month on a car loan. It also drives up the total cost of the car.
Your Access to a Wide Range of Conveniences and Necessities
You might be seeing a trend here. Your credit often comes into play when you’re buying something or seeking out a new service. Here are just a few things you may lose or have to pay more for if your credit score or history isn’t up to par.
- Cellphone companies may review a version of your credit reports before deciding to grant you a service plan. Poor credit could mean you get denied for service, don’t have access to the same options as others—such as payment plans on expensive technology—or must pay a deposit before service begins.
- Checking and savings accounts. Banks typically run some precursory checks before letting you open a checking or savings account. They may check with a service such as ChexSystems, which gathers information about negative banking account activity. If you’ve ever had a bank account closed because you mismanaged it, for example, it might show up on this report. Some banks and credit unions may also look to credit reports to see if you are generally responsible with money.
- Credit cards. When you apply for a new credit card, the issuer reviews your credit to see if you qualify for the card and what terms you should receive. Credit qualifications vary by issuer and card type. Generally, rewards cards and cards with low APRs require the highest credit scores. However, there are credit cards for every level of credit, including people with no credit, and secured credit cards are the traditional option for no- or bad-credit applicants.