Your credit score is a number that reflects your credit history. It can impact everything from the interest rate on a car loan to the apartment you rent. Learning about your credit score and understanding how it works is an important step in taking control of your financial life. Here is how your credit score can impact your daily life.
What Is a Credit Score?
Your credit score is a numerical expression of your creditworthiness, the likelihood that you will repay a loan. The higher your credit score, the more likely you will be approved for a loan with favorable terms, such as a lower interest rate. On the other hand, a low score may result in higher interest rates or being denied a loan altogether. Credit scores are based on your credit history, including whether you make your payments on time and how much debt you carry. Credit scores are used by lenders, landlords, and utility companies to decide whether or not to extend credit or services to individuals.
While you can get your credit score from any major credit bureaus, TransUnion, Experian, and Equifax, it’s essential to check all three to get an accurate picture of your credit standing. You can also use a credit app to help you keep track of your credit use and payments. There are different scoring models, so your score may vary slightly depending on which one is used. However, all scores generally range from 300 (poor) to 850 (excellent).
What Things Can Negatively Impact Your Credit Score?
Late or Missed Payments
Your payment history is one of the most critical factors in your credit score. Lenders want to see that you’re reliable and make your payments on time. Late or missed payments can have a significant negative impact on your score. If you’re having trouble making your payments on time, consider setting up automatic payments or speaking to your lender about a hardship plan.
High Credit Card Balances
Carrying a high balance on your credit cards can negatively impact your score. This indicates to lenders that you’re using a large amount of your available credit, which could signify that you’re struggling to manage your debt. It can be a problem if you have multiple cards with high balances. If you’re carrying a high balance, try to pay it down as much as possible. You may also consider transferring your balance to a card with a lower interest rate.
Applying for New Credit
Whenever you apply for new credit, it’s noted on your credit report. This is a hard inquiry, and too many of them can negatively impact your score. It indicates to lenders that you may be struggling to manage your finances or taking on more debt than you can handle. If you’re considering applying for new credit, it’s essential to do so sparingly and only when needed.
What Can Happen If You Have a Poor Credit Score?
Impact Your Ability to Qualify for a Mortgage
Lenders use your credit score to determine how likely you will default on your loan. If you have a low credit score, it may be challenging to get approved for a mortgage. If you’re looking to apply for a loan or mortgage, check your credit score. This way, you can be aware of any potential issues.
Rent a House
If you’re looking to rent a house or apartment, your credit score may come into play. Landlords often use credit scores to determine whether or not someone is a good tenant. If you have a low credit score, finding a place to rent may be challenging. However, some landlords are willing to work with tenants with bad credit. If you’re having trouble finding a place to rent, you may consider contacting a property management company.
Getting a Mobile Phone Plan
If someone has a poor credit score, it may signal to the mobile phone company that they are more likely to default on their payments. As a result, the mobile phone company may be reluctant to offer them a contract. In some cases, they may only be able to get a prepaid phone plan with limited minutes and data. A poor credit score can also make it challenging to finance a new cell phone, as most carriers require customers to have good credit to qualify for an instalment plan.
Your credit score is one of the most important numbers in your life. It can dictate everything from the interest rate you get on a car loan to whether or not you’re approved for an apartment. That’s why it’s so important to understand how credit scores work to ensure you have the best credit score possible.