Dave Ramsey may say a credit score isn’t necessary, but that seems to apply only if you’re independently wealthy and will never need a loan. For the rest of us, a credit score is one of the most important numbers for our finances.
How Your Credit Score Affects The Interest Rate You Receive
Of course, you know that the higher your credit score is, the better interest rate you will get on your credit cards and loans, whether that be for a mortgage, car loan, consolidation loan, or any other type of loan you need. The reverse is also true; the lower your credit score, the higher interest rate you’ll have to pay.
The interest rate you get is important because it has the potential to save you thousands of dollars. For instance, if you have a high credit score and take out a $200,000 mortgage for 30 years at 4.5% APR, you’ll pay $164,813 in interest over the course of the loan. If your credit score is lower and you pay 5.5% APR for the same loan, you’ll pay $208,808 over the life of the loan–$43,995 additional!
3 Ways Your Credit Affects You That You May Have Never Thought Of
Most of us understand the relationship between credit score and interest rate received. However, there are many other ways your credit score affects you that you may have never considered:
Rate for Car Insurance. Crazy, right? Your credit score can affect your car insurance rate, but it is just one of the factors that are used to determine your insurance premium. Insurers create a credit-based insurance score that is computed by looking at your credit history, geographic location, age, driving and claims history, among other things.
According to Nationwide, “For the credit portion of your insurance score, these factors are important: payment history, including delinquencies or late payments; length of credit history; and types of credit, such as credit cards and loans.” The good news (if you have a good credit history) is that “about half of [Nationwide’s] existing customers receive a rate decrease based on credit score” (Nationwide). The opposite is also true. Those with lower credit will likely pay more.
Ability to Rent an Apartment. Put yourself in a landlord’s position. Would you want to rent to someone who had a high likelihood of not paying and that you would have to spend months trying to evict? That doesn’t sound like a good time, not to mention all of the money the landlord would lose while the tenant is not paying. For this reason, more and more landlords are checking credit scores before renting to people.
Job Prospects. How you handle your credit and how you perform at your job should be two separate issues, right? Not so for some employers. An employer can only look at your credit history with your permission, but for some employers, if you don’t give permission, you won’t get any further in the interviewing process.
While the majority of employers will not ask to see your credit, in particular fields, asking is routine. “Vic Tanon, chief simplicity officer at Emplicity, and organization that consults in hiring practices across the U.S., says a bad credit rating is likely to be more of a factor in certain industries like financial services” (Forbes).
I was a poor, in debt college student when I applied for a job at a bank. I had to give permission to let them check my credit rating and history. While my credit score wasn’t bad, I was overextended credit-wise, and I never heard from the company again even though the interview had gone well.
Credit scores affect more areas of your life than you may realize. The more responsible you can be financially, the higher you can make your credit score. The higher your credit score, the less you’ll pay in many areas of your life. Have you knowingly been affected in these unexpected ways by a high or low credit score?
Do you know what your credit score is? Sign up for your free theimk.com account and get your free credit report and score, no purchase or credit card required.