U.S. consumers need a credit wake-up call. In fact, nearly half of all Americans don’t know their credit scores. Credit health is an essential part of life, so why ignore it? Whether it’s apathy, will or lack of education, the time to pay attention is now. Consider the following factors as you focus on credit health. What you learn could change your future for the better.
- Bad credit costs money. It’s easy to ignore credit health until you understand what it costs…literally. The road to bad credit is a bumpy one, often resulting in:
- Late fees. Overdue bills equal credit damage and dreaded late fees. If you are a repeat offender, these fees can cost you hundreds of dollars a year in unnecessary penalties.
- Higher interest rates. The factors of credit scoring are broad, but the math boils down to one thing: risk. As your credit score increases, your risk level decreases, allowing lenders to reward you by offering deals and lower interest rates. On the other hand, bad credit means your lenders will raise interest rates to account for the risk of default and non-payment. The consequences of high interest rates can affect how much you pay for rent, mortgages, auto financing, student loans, and any other revolving or installment account. The result is thousands of dollars lost based on risk and sub-par credit.
- Higher insurance premiums. In addition to rising interest rates, bad credit means you’ll pay more for home, auto, and even life insurance premiums.
- Lost savings. The common thread in all of these factors is lost savings. Bad credit has the power to drain your bank account and make you vulnerable to unplanned expenses.
- Emergencies are unplanned. Life is complicated and unpredictable. Injury, unemployment and even divorce are just a few of the ways financial hardships can quickly devolve into emergencies. Lost savings means you’ll have fewer options when it comes to managing these issues. You may even rely on credit cards to make ends meet, pushing you further into debt and damaging your score in the process. A healthy budget and savings account allows you to protect yourself from future financial worries and credit damage.
- Lifestyle improvements and credit savvy go hand-in-hand. Unless you are independently wealthy, you’ll need good credit to buy a home, finance a car, pay for your kids’ college education (or your own) and more. Sure, a few lenders may be willing to work with your sub-prime situation, but as we learned, you won’t find favorable interest rates along the way. Higher interest rates limits how much you can afford to spend, stifling your lifestyle goals in the process.
- Employers care about credit. A reliable workforce is important to any employer, and many believe that credit health is a helpful indictor of job performance. According to a 2012 survey by the Society for Human Resource Management, nearly 50 percent of employers use credit checks when making hiring decisions.
- Your mental and physical health matter, too. Financial worries affect more than your wallet. According to a 2007 survey by the American Psychological Association, 73 percent of consumers list money as a major source of stress. Worse yet, people who suffer from money-related troubles are more likely to experience anxiety, depression, migraines, chronic pain and even heart attacks. In a cruel irony, mental and physical illness caused by these problems often lead to medical bills, creating a vicious circle of financial hardship.
While it’s easy to ignore your credit health, it isn’t wise. Just as you wouldn’t run a marathon without training, you should never use credit without practicing your paces. Take time to focus on financial education. Don’t miss an opportunity to live a better life.