Credit health is full of irony. Although income isn’t a factor in credit scoring, mismanagement of funds often leads to score damage. If you think credit is just a three-digit number to be ignored, think again. A low score is likely costing you money every single day in the forms of:
- Interest rates. High risk equals high interest rates on your accounts. Whether it’s consumer credit, a fixed loan, student debt or other form of borrowed funds, a low credit score means you will pay more in interest over time.
- In addition to higher interest rates, financing with bad credit often comes with undesirable terms attached. For example, suppose you need a new sofa but can’t secure regular financing. You shop at a rent-to-own store that promises easy weekly payments with no credit check required. The only problem: in exchange for overlooking your credit score, the store charges you 10 times the value of the sofa.
- Insurance premiums. Insurance is the business of risk, and bad credit doesn’t do much for your credibility. A study published by InsuranceQuotes.com revealed that “homeowners with poor credit pay 91 percent more for homeowners’ insurance than people with excellent credit.” Translation: people with better credit are paying less money for the exact same service.
- Credit card rewards. The credit elite have access to high-end credit cards that offer the best cash back, frequent flyer mile programs, and other customer deals. Excluding yourself from these offers means missing the chance to save money on everyday purchases.
- Employment opportunities. Finding the right job is tough, especially when credit isn’t on your side. Nearly half of employers request to review an applicant’s credit report to gauge responsibility. Negative marks could keep you from securing the new career and raise you deserve.
- A catalyst of bad credit is late or unpaid bills. Wracking up unnecessary fees means sacrificing savings in the process.
- Losing money to high interest rates, late fees and other credit damage means missing out on opportunities to invest and grow your wealth. It doesn’t take a $100,000 salary to build a large bank account. Saving as little as $5 a day could bankroll your retirement with time and returns (more on that here.)
The bottom line: Bad credit is a closed door, but it’s possible to open it with the right tools. Stop sacrificing your income by committing to financial security.