Every creditor has its own way of defining credit score ranges. However, the most commonly used reference for credit scores is set by FICO.
An excellent score ranges from 720 to 850. On the other hand, a good credit score ranges between 690 to 719. A fair score is somewhere between 630 and 689, while a bad credit score is between 300 and 629.
Your credit record will affect your chances of getting a loan and the financial aspects of your life by limiting your ability to choose and decide. It includes utilities, business transactions, and even when purchasing goods.
Credit Scores’ Impact on your Life
A good credit rating means you are diligent and responsible in paying your debts. Since no one wants to be left hanging when payment time comes, lenders often use it to assess whether or not you’re creditworthy.
It is proof that you’re reliable when it comes to payments. Having a low credit score will tell otherwise. Below are the effects of having a bad credit score on your finances in the future.
Affects the Price of Your Bills
Your credit score will have an impact on your financial reputation. A low credit score could affect your monthly bills, such as cell phone and insurance bills, as they may levy a higher fee. Utility providers also monitor your credit score regularly before they provide you with their service.
These service and utility providers always want to ensure that the customer they are serving will not be a risk to their company. When an individual has a bad credit history, this means that he/she will possibly pay late or not pay at all.
Will Keep You From Acquiring Your Desired Home
A low credit score will also affect your mortgage application, which will restrain you from acquiring your desired home. On the other hand, if you are planning to rent a home, landlords will mostly prefer tenants with a high credit score.
A low credit score will indicate that you are incapable of paying for a prime property, which is why you’ll likely be denied on a mortgage application. This also applies when renting an apartment, as landlords will doubt your capabilities in paying the rent.
Affects Your Credit Card Usage
If you have a high credit score, you will experience all the perks offered by the credit card company, such as bonuses and prizes, as well as lower interest rates. You’ll be ensured that you can continue using your credit card anytime you need it.
A good credit score is the number one requirement in acquiring a credit card. Having a low credit score, on the other hand, will result in your credit card being revoked as it shows that you are not eligible for the credit card company’s service due to financial incapability.
Impact on Your Employment Eligibility
Though your future employer might not see your credit score, they can still run a credit check on you by looking at how much debt you are in and how prompt you are in paying them. This information is enough to tell them if you have a good or a bad credit score.
A credit check is a part of the company’s background check on their applicants before they decide whether to hire them or not. When you have a bad credit history, an employer will automatically see you as a risk, as it could indicate that you are not organized and responsible.
Individuals who have multiple credits and excessive debts are indications of financial distress, which, to some employers, increases the chance of theft and fraud that can put the company in jeopardy. Your credit record is a reflection of how you handle responsibilities and how trustworthy you are to be part of the business.
May Hinder Your Business Loan Application
When the time comes that you are going to need a business loan, your credit score will play a significant role in your application process. If you thought that your personal credit wouldn’t affect your business loan application, you are wrong.
Business loans are just the same as personal or car loans, where lenders need to ensure your capability in paying back what you owe. That is why your personal finances will still play a role in business loans, as this is where lenders see how responsible you are in managing your finances.
If you are looking for someone who will finance your business, such as individuals willing to invest, they will also dig into your credit records. Their decisions will depend on what information they acquire, such as your credit history and score. Nobody wants to partner with an individual who is not trustworthy when it comes to money.
Affect Your Retirement
As mentioned before, a poor credit score often leads to higher interest rates on loans. Spending excessively to pay for higher interest rates will affect your savings and retirement. Hence, you should know how to maintain a good credit score and save those extra bucks to prepare for retirement.
However, many retirees depend on their children or other relatives to survive due to past financial mistakes. You should protect your quality of life by making financial decisions that will benefit you at present and in your future.
How to Manage Your Credit
Managing your credit will help you stay away from the complications bad credit brings. The most common and obvious thing to do to have a good credit history is to pay your bills on time. Remember that your credit history is the major factor in calculating your credit score.
The next best thing you can do to maintain your good credit record is to pay your debts. One missed payment for a period of 30-days will have a great impact on your credit score. This late payment will cause a 90 to 110 point drop on your score, especially if it’s 780 or higher.
In the event of a missed payment, make sure to pay it as soon as possible to avoid any further damage to your credit record. The sooner you pay it, the lesser the negative impact will reflect on your report.
Do not take your credit score for granted, as it will significantly affect major factors in your life. It’s important to put effort when building your credit record and maintain a good credit standing. Your credit record will reflect how responsible you are in managing your financial responsibilities. Work hard on boosting your credit score as early as possible to ensure financial security in both the present and the future.