Your credit score doesn't just determine whether or not you get approved for a loan or credit card – it has far-reaching effects on your life.
If you have bad credit, you know it can feel like a million doors slammed in your face. Plenty of things people take for granted, like getting an apartment or a car or even a job, can suddenly become much more difficult.
In this article, we’re looking at some of the ways your credit score can affect your life and offer a few tips for improving your credit.
What is a credit score?
Your credit score is a three-digit number from 300 to 850 that is built from various aspects of your credit history. Credit scores largely come from two main sources: FICO and VantageScore. There are a number of factors that affect your credit score including:
Payment history (35% of your score)
Accounts owed (30% of your score)
Length of your credit history (15% of your score)
How frequently you’re opening up new lines of credit (10% of your score)
What makes up your credit – revolving accounts like credit cards and installment accounts like long term loans (10% of your score)
What amounts to a good or bad credit score?
As mentioned above, your credit score will range from 300 to 850 based on the factors above. Here’s what those numbers mean:
Less than 580 - Poor: This credit score means you will be seen by lenders as a risky borrowers.
580 - 669 - Average: This score puts you just slightly below the national average.
670 - 739 0 Good: This score is around the national average and will be accepted for most loans.
740 - 799 - Excellent: This score is above average and will be seen by lenders as dependable borrowers.
More than 800 - Exceptional: This score is well above average and is likely to be approved for borrowing with any lender
5 unexpected ways a bad credit score can impact your life
Low credit scores can make getting a mortgage, car loan or credit card harder to get. Here are a few more ways that you might have thought of that your credit score will impact.
Utilities: Utility contracts like those for your gas, electricity and water are all essentially a form of credit. You sign up and enter into an agreement with the provider. They provide the service and you agree to pay for it. Bad credit might mean the utility company will require a deposit or letter of guarantee to cover the loan of service.
Phone and internet: As with utilities above, phone, internet and cable are service plans that are relying on you to pay for the service rendered. Poor credit or past payment history can make them more likely to deny you service.
Jobs: Generally to improve your credit score, you need money, and a good way to get more money is to get a better job. However, some businesses check credit scores and will reject a candidate based on a poor one. This is particularly true if the position involves handling money.
Checking and savings accounts: It makes sense that a credit card company would check your credit before approving you for a new line of credit, but did you know that banks typically run checks before letting you open a checking or savings account too?
Insurance: Your credit score can have a big impact on how much you pay for insurance. Nationally, drivers with Very Poor credit scores (under 580) pay an average of $2,887 a year for their car insurance, while drivers with Exceptional credit scores (between 800 and 850) pay just $1,350 per year — even if they have the exact same driving record. Only seven states ban or restrict insurance companies using credit to determine rates.
Finding the right insurance
Now that you know what a big impact your credit score can have on how much you pay for insurance, here are a few links you might want to check out, depending on what applies to you:
If your credit score is on the lower side, and you’d like to improve it. Here are some tips to get started.
Get a copy of your credit report. Being informed of your current credit score is the first step in taking control and looking for areas of improvement. You can get a free report from one of the three major credit bureaus: Equifax, Experian or TransUnion. Your bank may offer this service too.
Prioritize outstanding payments. If you have any late payments, that’s the first thing to focus on. Lenders and insurance agents can see how late a payment was (in 30, 60, or 90+ day installments). The later the payment, the greater the impact on your credit score.
Pay off revolving credit debt. Starting to chip away at debts will help to raise your credit score. Search for free credit counseling in your area if you need help figuring out which debt should be paid off first.
Focus on paying bills on time. Missing a payment can lower your credit score in a hurry.
If you’ve paid off a debt, ask to have it removed from your report. Sometimes even old debts that have been paid will still be affecting your score. You can speak to the original creditor or collections department to see about having those removed.
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