Your credit score dictates quite a bit. However, it can sometimes be difficult figuring out what affects your credit history and how. Understanding what is impacted the most will likely encourage you to reevaluate your current score and develop a plan to improve it.
Defining what makes a credit score low is one of the first steps toward understanding your credit report. According to Credit.com, poor credit usually falls below 649, and bad credit is under 600.
You want to be aware of your current credit score at all times. This will help you determine whether you need to work toward improving it, or if you simply need to maintain your score.
"Having a bad credit score will impact you negatively in a myriad of ways."
How bad credit works against you
From applying for a home loan to buying your first car, your credit score serves as an indicator of your financial responsibility for lenders everywhere. According to Money Crashers, employers may even check your credit history to assist them as they determine whether you are a responsible individual who would be a good fit for the team.
Having a bad credit score will impact you negatively in a myriad of ways, and according to Forbes, it isn't limited to when you are trying to borrow money.
Your credit history can affect the relationships you have with others. In fact, many engagements have been known to end because one individual was displeased with the results of a credit report, according to Forbes. Because assets are shared and individuals apply for loans as a couple after marriage, bad credit scores impact both parties negatively. This is especially true when you decide to invest in a home mortgage.
In addition, credit scores can impact the cost of property and car insurance in some states. Consumer Reports noted the average difference in car insurance rates paid by those with "good" scores and "excellent" scores is $214.
Premiums are also impacted, according to Consumer Reports. Individuals with a poor credit score may pay as much as $1,301 more on their premium than the average consumer.
Access to utilities
With a poor credit score, gas, water and electric companies may require you to provide a deposit to get service, noted Forbes. Because these operations often check the credit history of consumers, they can determine whether you will likely remain current on your bills throughout the year. A poor credit history leaves them reason to doubt your dependability.
"Individuals with a poor credit score may pay as much as $1,301 more on their premium than the average consumer."
Finding your home
Whether you are applying for a U.S. home mortgage or a unit in the apartment building you've had your heart set on for months, your credit score can determine whether you are approved to live in the home you hope to call your own. A credit report is one of the most important factors landlords and mortgage brokers consider when evaluating your creditworthiness.
A low score suggests you will not be able to pay monthly mortgage payments or provide rent whenever it is due.
Restrictions and higher interest rates
When your credit score is low, lenders will consider you a higher-risk consumer. If you do qualify, there will probably be substantial restrictions and higher interest rates associated with the loan. For example, if you are looking for a home loan, you can apply for one through the Federal Housing Administration. The FHA will insure your home loan. However, they will also require you to pay a private insurance premium to protect themselves in case you default on a loan.
Interest rates will also rise in conjunction with your lower credit score. Along the same lines, lenders raise these rates to protect themselves in case you are unable to continue making payments. By charging more interest, they can collect more money earlier.
Address the issue
It is inevitable that a credit score is important for a variety of reasons. If your financial history is not stellar, it is critical to begin improving it as soon as possible. Eliminating debt, paying bills on time and in full when possible are a few ways you can work toward improving your score. However, there are additional factors that may be responsible for bringing your number down.
Errors that cannot be confirmed may lower your score substantially. Enlisting the assistance of a credit repair company is a great way to work toward improving your credit score. These experts know how to identify incorrect information and eliminate it from your report. In addition, these operations can work with you to develop an appropriate plan for improving and maintaining a higher score.
With an amended and polished credit score, you can feel confident applying for a mortgage so you can land the house of your dreams, secure low interest rates on loans and save money on insurance costs.