Your credit score’s influence is more significant than you think. Discover the unexpected impact of your credit score and the ways it shapes your life.
In theory, being able to borrow money from an official entity that provides you with clear guidelines and flexibility sounds like a perfect recipe for financial security. Unfortunately, debt can quickly become a serious problem that can plague your financial security. Many people are not familiar with the credit score as a concept. They may have heard it before, but the true mechanics that govern credit score are not often as easily visible as people may think. We’ll be listing the unexpected impact of your credit score on your life.
The Unexpected Impact of Your Credit Score on Your Life
Interest Rates
Many people think interest rates on loans are fixed according to a plan or schedule that the bank or lending institution has set. The truth may not be as convenient because banks use credit scores to determine the interest rate on loans for every individual. Since a high credit score means that you’re more likely to pay your dues punctually, the interest rates are considerably lower (Better Money Habits) than those with lower credit scores. A low credit score can also be a red flag to many lenders because of the higher probability of the borrower defaulting on a loan, enforcing them to put extra precautions. The by-product of the high interest rate can mean that you won’t be able to set aside money for emergency funds or repay other loans.
Access to Financial Solutions and Shops
A credit score can actually control the scope of financial solutions that you’re eligible to use. It’s not unheard of for people with extremely low credit scores to not be able to secure loans or credit cards. Not being eligible for credit lines is a serious problem that you’ll often face when there comes a time and a need for it. A lot of people think that they can rebuild their credit score easily, no matter how low it gets. However, that is not entirely true. While it’s still possible to get approved with bad credit using such solutions, it’s important to realize that the interest rates will be higher, in addition to the possibility of paying extra fees. The process is even more difficult when you’re being denied the tools you need to use to rebuild it. To avoid being denied a credit line, a lot of people search for alternative solutions.
The link between Credit History and Credit Score
A credit score isn’t just a number that is instantaneously generated by a bank or a lending institution. The more time you spend punctually paying your dues, the better your credit score will be. Credit history is a metric that’s used in determining the overall credit score of an individual. The problem that many people unexpectedly meet is being caught off-guard in a credit card paradox; they need loans or credit cards to improve their score, and they are unable to get those loans because they have a low credit score. This problem can be resolved if the individual takes out a secured loan, where there is collateral, which can be easily done to help you improve your overall credit score.
Real Estate Issues
A lot of people on the verge of entering the housing market suddenly find out that their credit score is a serious obstacle that needs to be cleared before they can venture into the market. Individuals taking out mortgages will notice that the interest rates are quite problematic, making it an unreasonable solution for financing houses; some with extremely low scores are denied mortgages altogether. Even those trying to rent a house or an apartment will have problems with low credit scores because landlords are allowed to check credit scores to ensure that their renters will make the payments.
Employment
Ironically, a job where you can get enough money to rebuild your credit score can actually refuse you for having a low credit score. This always comes off as a shock to many potential employees who have all the necessary skills and knowledge. Not all employers do this, but many employers check candidates’ credit score (Experian), which means that it can seriously affect your employment opportunities. Believing that the personal credit score of an individual is an indicator of the candidate’s maturity and organizational responsibility and is taken quite seriously by employers in the financial services industry.
Your credit score is not something that you should worry about only when the occasion arises. Simply put, a credit score is a 3-digit number ranging from 300 (minimum) to 850-900 (maximum). Finding yourself in the low range is a pretty serious indicator of potential financial calamity. Prioritize having a high credit score whenever it’s possible to avoid unexpected issues in the long run.