Let’s cut straight to the chase: your credit scores are a big deal. Credit scores are the foundation that sets the stage for you to live your best life – at least from a financial standpoint. Beyond determining if you get approved for a credit card or loan, your credit scores can also influence other key areas of your life, such as where you live, the car you drive, or whether you can financially start or grow a business.
Types of Credit Scores
Your credit score makes it possible for lenders to determine if they should start a relationship with you. Lenders use the three-digit scores, ranging from 300 to 850, to decide if you are likely to repay or default if they give you a loan or a credit card based on your credit history. If your credit score falls on the lower end of the range, it tells lenders that you may be a high-risk borrower, while higher scores indicate you are a lesser credit risk.
Credit scores come in two forms, Generic and Custom. Generic scores are used to determine your general credit risk. Custom credit scores are developed for use by individual lenders for specific types of lending, such as mortgage or auto lending. Credit scores can impact your life in many areas you don’t expect, including your home, auto, employment, and business. It can also determine your ability to enjoy a comfortable lifestyle.
Credit Scores Can Affect Your Home
Deciding to buy a home is a huge step, but you’re not the only one involved in the decision-making process. Before approving you for a mortgage loan, lenders want to make sure you have a good credit history and will pay back the loan on agreed upon terms.
Lenders not only look at your credit scores to decide whether to say ‘yes’ to your loan application, but they also use the scores to determine your loan interest rate. If you have a low credit score, lenders may deny your loan application. If the lender decides to give you a loan regardless of your low score, they may charge you a higher interest rate.
Even if you’re not ready for a mortgage, your credit scores can still affect your living situation since landlords also rely on your credit to decide whether to let you rent an apartment.
Credit Scores and Your Car
If you are in the market for a new, leased, or even used car, like many consumers, chances are you will need to apply for an auto loan. Like buying a home, your credit score will affect your qualification status, your loan amount, and the interest rate the dealer charges you.
Also, a lower credit score will affect your car choices and can also limit your auto lender options. If you are approved and charged a higher interest rate, that will increase the monthly amount you pay, which will also raise the total amount you pay over the loan’s life.
Your Credit Affects Your Career
Many companies check your credit report as part of the hiring process. While your credit score is not included, potential employers can still use your credit history to assess if you’re financially responsible, which could impact their decision to hire or promote you. This scenario may be especially relevant if you are applying for a financial-related position.
Small Businesses and Credit Scores
If entrepreneurship is one of your long life dreams, your credit score can decide if it becomes a reality. If you need startup capital to get your business off the ground and don’t have the cash flow, you’ll need to secure a small business loan. Having a solid credit score can help you qualify.
Credit and Living a Comfortable Lifestyle
Many utility services, cable, internet, and even cell phone service providers check your credit and credit scores before approving you for these services.
Your credit scores will travel with you throughout your life. Being a responsible and reliable borrower can help make your experiences easier, less expensive, and more comfortable. To learn more about getting the credit you deserve, click here for more credit education.