If you understand anything about credit then you know that the manner in which you handle your monthly bills certainly impacts your credit report and credit score. But did you know that what’s on your credit report and your overall debt can adversely affect what you pay on your monthly bills?
It’s true. More and more organizations look at consumer credit reports these days — not just banks extending mortgage or car loans, but even small local utilities companies and potential employers. And negative items or late payments on accounts that show up on your credit report can have a direct impact not only on loan interest rates, but also on your other monthly bills that aren’t tied to bank loans.
Let’s take a look at some of the regular monthly expenses that can be negatively affected by your debt and credit score.
- Your rent – Credit reports and background checks are now a standard part of the rental application process, and landlords can take action based on any negative items or “red flags” in your credit report. According to TransUnion, 48 percent of landlords include credit checks in their screening process. In the worst-case scenario, your credit report could cause your rental application to be denied. Even if you are granted a lease, debts that negatively impact your credit score can cause a landlord to collect more rent upfront, additional fees, or even to charge you a higher monthly rate than they would a tenant with a good credit score. Any of these can add up fast when it comes to impacting your monthly budget. Paying too much for rent can leave you overextended and thus compound any debt or credit issues you may already be having.
- Your utilities- Landlords aren’t the only ones keeping tabs on your credit score. Many utility companies — including water, electric, cable, phone, and Internet — have also made credit checks part of their application process. If you are deemed to be high risk based on your score, you may not be allowed to get these services in your name without a guarantor or paying a high security deposit. This is more money that will be allocated away from your other monthly bills and expenses.
- Your car and home insurance – Unless you live in Massachusetts, Hawaii, or California, your credit score can be a catalyst for insurance companies to raise rates on your auto and home insurance policies — or even deny you coverage altogether. But instead of looking at your credit score from the credit risk perspective (or the likelihood you’ll repay a loan), insurance companies look at what is called a credit-based insurance score. A credit-based insurance score, indicates whether or not you are likely to have insurance claims in the near future that will result in a loss for the insurer.
There are clear correlations between credit risk score and insurance score. Both scores are based on your current credit report data and both are calculated using FICO scoring models. Some estimates show that car and home insurance rates can double, depending on credit-based insurance score.
- Your credit cards – Debt and credit score have a direct impact on the rate of interest you’ll pay on credit cards. Those with high credit scores will qualify for the best-available APRs, and in some cases even zero-percent interest deals and offers. But paying high interest (some cards exceed the 20-percent mark for cardholders with bad credit) can make a huge difference in your monthly credit card bills. A credit card with a $4,000 balance at an interest rate of 18 percent, for example, can cost you more than $700 a year — or $59 per month
- Your car payment – Just like credit cards, car loan interest rates are determined by your credit score. And the zero-percent interest deals you hear advertised apply only to those borrowers with excellent credit. Lower interest on your car loan translates to lower monthly payments, and more money in your pocket to put towards other bills each month.
- Your mortgage payment – Just like the credit card and car loan, mortgage interest is determined by your credit score. Of course, the implications of higher interest are much greater with home loans being in the hundreds of thousands of dollars range. Not only is interest a factor in your monthly mortgage payment, but if your debt to equity ratio is too high, you will also be required to pay mortgage insurance as part of your loan. These factors can make a difference of hundreds of dollars a month in your monthly mortgage payment.
- Potential employment – More frequently potential employers review credit reports to determine whether an applicant will be a responsible addition to their team. If you have late payments, charge-offs or judgments this may affect your desirability as an applicant for these jobs.
Consider fixing your credit
If high debt is having a negative impact on your monthly bills, and therefore, your cash flow, it may be time to consider fixing your credit. Working with a professional credit repair services firm can help you to better understand what impact your debt may be having on your credit score and how to fix it.
At Lexington Law, we help you understand your legal rights and options when it comes to your credit, and leverage them to ensure your credit report is fair, accurate and substantiated. Contact us for a free consultation today.