9 Ways a Low Credit Score Could Be Affecting Your Life
If you're trying to make the most of every dollar you have, you need to know how important your credit score truly is. Your FICO credit score, a calculated figure representing your financial history and reliability, is often used by financial institutions when considering whether to extend a line of credit. However, this figure may be influencing your life in many unseen ways, compromising your ability to build a stable financial future for yourself if your score is too low.
Credit Score Effects
These are just some of the ways that your low credit score could be affecting your life:
- Higher bills. You may not even realize that your bills are higher because of your low credit score. If you don't have reliable credit, utility companies may be able to charge you additional fees, or require security deposits in order to provide you with service. You may also be charged more for things like insurance or rent, simply because you're seen as a risk. Over time, that can amount to thousands of dollars.
- Mortgage availability. Most people realize that credit scores are used in determining your eligibility for a mortgage. Banks look to your credit score to determine how much money you can take out for the loan, what kind of terms you'll get, and sometimes, whether they'll lend anything to you at all.
- Mortgage interest. Even if you get the mortgage, your credit score could affect the interest rate you pay. Most banks have tiered interest rates, with the best rates reserved for prospective homeowners that have a credit score of 740 or higher. If you have a low credit score, you could end up paying more on your mortgage every month.
- Other loans. Mortgages aren't the only loans that are affected by your credit score, either. Small business loans, auto loans, and other personal loans may not be available to you if your credit score is too low - and if they are available, you'll end up paying a higher interest rate.
- Business funding. If you're considering starting a business, you need to know that you'll face heavy personal scrutiny from angel investors and venture capitalists. These prospective investors want to make sure their money is safe, so they'll be investigating your personal financial history. If your credit is low or nonexistent, they may be hesitant to invest - even if your business idea is a strong one.
- Apartment rental. Most landlords will run background checks on their tenants to look for past criminal activity, previous rental histories, and of course, your personal credit. If your credit score is too low, your application may be denied - or your landlord may request an additional security deposit, or make you pay higher rent to compensate for the perceived risk involved with the agreement.
- Credit cards. Your credit score will also affect how easy it is for you to secure new credit cards (and what types of rates you get). Of course, if you have a low credit score, the last thing you want to do is open up a new account and start accumulating more debt, but in general, the more options you have open to you, the better.
- Job opportunities. Most employers will run background checks on their applicants, similar to how landlords investigate their tenants. If you have a low credit score, it may not ruin your chances of getting the job entirely, but it may be a tiebreaking factor if you have the same qualifications as another candidate who has a stronger financial history. It's seen as an indication of reliability.
- Your personal relationships. Finally, your credit score may even affect your personal relationships. If you're married and buying a house together, your lender will look at both of your credit scores when determining your interest rates. Having a low credit score could put a strain on your otherwise healthy relationships - especially if your partner's credit is in good standing.
What to Do
So what can you do if your credit score is low? First, you'll need to check your score using a service like CreditKarma.com. It's completely free to check your score, and so long as you don't do it often, it won't hurt your score to check it. You'll also be able to determine the main areas that you need to improve to boost your credit score (such as on-time payments or total amount of debt).
From there, you can enlist the help of CreditRepair.com or a similar professional credit improvement resource. Together, you'll be able to make a plan for credit improvement, raising your score up to several hundred points over the course of several months. At that point, you'll be free of the reach of your financial past, and can start building the financial future you've always wanted.
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