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Your credit score has a significant impact on your finances and even your life. The key is to start paying attention to your credit score before you need it – otherwise it may be too late to improve it. Find out why your credit score is important and a couple times when it’s not.
What Are Credit Scores
Credit scores are used by financial institutions (lenders, banks, etc.) as well as non-financial organizations (utility companies, landlords, etc.) to determine a consumer’s creditworthiness. These organizations want to know how likely you are to default on a line of credit or other financial obligation before they approve you. The most widely used companies that provide credit scores for these purposes are FICO and VantageScore.
Why Your Credit Score Is Important
Your credit score impacts your life in many ways and is important to monitor for many reasons.
It Can Save You Money
Having a high credit score can save you money on just about every type of line of credit. This includes credit cards, mortgage loans, auto loans and personal loans. But how exactly does a high credit score save you money on lines of credit?
The higher your credit score the less risky you are seen by lenders, so you will qualify for lower interest rates. This can make a huge difference based on the size of the loan!
In fact, on average someone with FICO credit scores in the 620 range would pay $65,000 more on a $200,000 mortgage than someone with scores above 760 according to Informa Research Services.
Find out more ways you can save money with a high credit score in our article, 6 Ways You Can Save Thousands By Raising Your Credit Score.
It Can Determine Where You Live
Your credit score not only determines how much you pay for a mortgage loan and if you’re approved, but it also impacts renters. Landlords and rental companies use credit scores to help them decide who they should rent to. Additionally, if you are approved to rent a property, your credit score can determine the amount of the security deposit you have to put down.
For people with poor credit scores this can mean not being able to rent in the area or complex they want to or having to put more money down than other renters.
Utilities, Insurance & Phones
Did you know that utility companies even use your credit score? Water and electric companies use your credit score to determine the amount of the deposit to open an account. Personally, we’ve known people who had to pay a $100 deposit to open a utility account when they moved and with our high credit scores we didn’t have to put any money down with the same company.
Your credit score also impacts your auto and homeowner’s insurance premiums. Insurance companies use your credit score to determine their own credit-based insurance score. This score is an effective predictor of risk under car and home insurance policies and impacts the premium that you’ll pay.
Many phone providers now have options that require a certain amount down and then a monthly amount for several years to pay off the full amount of the device. Generally, this line of credit is not offered to people with poor credit scores. Instead, if your credit score is not high enough you’ll have to pay for the phone in full or seek other options.
Check out our credit card guide to find a card suited to your credit and to learn more about managing your credit.
When Your Credit Score Isn’t Important
Despite the fact that your credit score is important in many circumstances, there are a couple of instances when your score doesn’t matter.
When You’re Applying For A Job
A common concern for people searching for a job is that their credit score could actually prevent them from being hired. It is legal for companies to check your credit for employment purposes in most states. However, the Fair Credit Reporting Act requires companies to get your permission in writing before they can get a modified credit report. It’s important to note that the modified credit report that potential employers can check does NOT include your credit score. The credit report will still show your payment history, any derogatory marks and other factors that are used to determine your creditworthiness.
When You Pay Cash In Full
If you pay cash in full for a house, a car, furniture or even a phone, then you don’t need to worry about your credit score. If you need to rely on credit to make a purchase, then you can be turned away based on your credit score. But if you pay in full, your credit score won’t even be evaluated. This means that you don’t have to worry about your credit score if you have enough money.
How To Get Your Credit Scores
You can get your FICO credit score for free from Experian. It offers access to your Experian credit report and includes credit monitoring and alerts. Experian Boost also enables you to improve your credit score by adding payments that are left out of your credit history, like cell phone, utility bills and even Netflix, to your Experian credit report. The best part is that it’s free!
You can get your VantageScore credit scores from Credit Karma for free. Credit Karma also provides insights into your credit scores and how you can improve them as well as credit monitoring so you will receive alerts when there is a change to your credit reports. They also provide personalized recommendations for credit cards and loans depending on your credit score.
You can improve your credit score with a few quick and easy tips we learned firsthand. Read our article, 5 Easy Tips To Raise Your Credit Score.
Financial freedom begins with good habits.Rebecca & Tiago, theloadedpig.com