Our society is becoming more and more dependent on using credit to make purchases and for decision-making because more and more businesses are integrating credit scores into their purchasing or consumer procedures.  

Years ago, credit scores didn’t even exist.  Then, banks decided that they could use the information about how creditworthy a potential client was in their decision-making process.  The credit bureaus were born and a scoring process was created.  However, credit scores didn’t seem to influence too many areas of a consumer’s life back then, unless they were buying a house or buying a car.  Those days are gone.  If you look closely at where we are now, good credit is used far beyond just getting a mortgage or opening a credit card.  We now have businesses making it clear that before they extend their products or services to you, you must prove you are a credit-worthy candidate, and if not, you will be charged significantly more for the risk.

I understand how completely frustrating the entire credit scoring process is.  Even credit experts can’t tell you exactly what it takes to generate a good credit score.  They know the ingredients, like paying in a timely manner and keeping your income to debt ratio in check, but they don’t know the order or amount that those ingredients play in the role of baking up a perfect 850 score. 

It’s also confusing when companies that seem to have nothing to do with credit are interested in our credit scores, like car insurance companies.  However, those companies have done studies and they are relying on the data from those studies that showed them people with higher credit scores have fewer accidents.  Therefore, our credit scores are now being used in new and sometimes seemingly unrelated ways.  Your credit is an important component in so many areas of your life that you just don’t see.  That is why you should be proactive in taking care of and building your credit score.

Just who or what is your credit score affecting and why?

1.      How much you’ll pay for rent or a mortgage.  Before you buy the house of your dreams, mortgage lenders would like to know and be sure that you won’t default on your mortgage.  The lender will consider it dangerous or risky to grant you a mortgage loan if you don’t have good credit.  If your application is approved, your credit will affect your interest rate which will have a direct impact on your monthly mortgage payment.  If your credit is bad, it most likely means either no loan or a higher mortgage payment.  A mortgage application could be turned down as a result of your bad credit.

However, don’t think that your credit is not important because you plan on renting.  Even if you are not looking to buy a house right now, your credit counts.  Landlords and management companies check your credit when you submit an application.  They will use your credit score to decide whether or not to rent to you.  You can be denied an apartment if you don’t have a good credit score because they consider your lease a loan, and they want to be sure you will pay on time each month.  Also, studies show people with higher credit scores take better care of the properties they live in, regardless of if they own them or not.  This makes a big difference when choosing a potential renter for their properties.

If you have a low credit score, they may still accept your application for a mortgage or for a rental.  However, they can and most often will charge you more than someone with good credit.  People with bad credit pay between 10% and 30% higher with larger security deposits.  Keeping your score high can save you upfront costs as well as monthly payments.

2.       Where you may live:  People with lower scores can be and are often denied residency in apartment complexes altogether.  There are several upscale rentals that provide a variety of incentives to their renters, like 24-hour security, doormen, gyms, and party rooms.  If your credit is too low, you won’t be living in a complex like that because they won’t bother to take a chance on you.  Their amenities are too costly to maintain for a low score risk.

3.      Your Car Payment and your car insurance:  As we said before, insurance companies track your credit and adjust their rates accordingly.  They have found those with higher credit scores to be better risks to their company and, therefore, they get lower rates.  Plus, you won’t get a loan with a decent interest rate unless you have a decent credit score.  The better your score, the better your rate.  Sometimes, a good credit score can even get you a zero percent rate on your car loan.  A lower score will mean higher interest and higher car payments.  Also, most people with good credit will qualify for a larger loan amount, as well.  Good credit means more money for a nicer car, less money needed for the down payment, and less money paid per month.   Bad credit means your options are limited.  You’ll have high-risk lenders who charge you outrageous interest and may even stretch out your loan for a longer period of time to make you think otherwise.  Don’t be fooled.  If Jane and Jack both got a car for $20,000, but Jane has good credit while Jack does not, they will not only pay different amounts per month, they may pay for different periods of time and that difference could potentially pay for another car. 

4.      Your Job Search:  While you’re searching for your dream job, remember a potential employer will most likely be pulling your credit.  Employers today almost always conduct credit checks as a part of the hiring process.  Keep that in mind, they usually check credit reports and not credit scores.  If you are not financially responsible, a prospective employer might find it difficult to hire you.  The employer might think your level of debt is too high compared to the salary offered.  Some employers check their current employee’s scores before giving them a raise or promotion, especially for executive positions or financial related positions.  Good credit shows responsibility and reliability. 

5.      Your Monthly Bills:  By now, you are probably aware that credit is needed to start up most utility services and even cell phone services.  Therefore, before turning on your water or electricity, the utility company will check your credit history and pull your credit score.  While bad credit rarely means they will deny you service, it can mean that they may ask you to have someone with good credit co-sign with you.  It can also mean that they may charge you a hefty security deposit, whereas someone with good credit may not be required to pay one at all.

6.      Your Ability to Start a Business:  Most individuals I know have dreamed of setting up their own business.  If you are on my website reading this right now, you are most likely a person who owns or wants to own their own business.  If so, this is important to know.  Your personal credit will be important while you are starting up your business.  Many business start-ups need a substantial amount of money and loans may be necessary.  Renting office space, turning on utilities in your business’ name, all of that requires your personal credit until your business is able to build its own. 

Be aware, your credit affects so many things in your daily life that you just don’t see.  Student Loans, Credit Cards, Child Support Enforcement Agencies, and Banks all use your score when investigating you in order to determine your creditworthiness and your worthiness as a potential client.  We may have forgotten or missed a few, but it won’t matter as long as you do your best to keep your credit score high.  Look for our articles on ways to do just that.    

P.S. If your credit needs a little TLC, I highly recommend Vivix Credit Solutions in Las Vegas, Nevada.  We don’t get anything for recommending them, but we still do.  They do an excellent job and have an A+ Rating with the Better Business Bureau.  Click here for more information.

Michelle R Russell

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