Whether you’ve built a solid credit score already or have one that still needs work, it’s important to know what ways your credit score affectsyou.
A recent WSFS Bank study of 2,005 Americans between ages 18-40 found that 36% of respondents felt building good credit was a financial goal out of reach for them and 78% said they weren’t good at maintaining goodcredit.
Your credit score helps determine your creditworthiness with lenders, and a solid score can help put you on a path toward purchasing your dream home, a new car and much more. A score around 700 is generally considered good, with anything over 800 beingexcellent.
Here are a few ways your score could be impactingyou.
Mortgages and Loans
Your credit score helps lenders determine your dependability and if you’re likely to be able to pay a loan back. Your score not only impacts whether your loan application is approved, it also affects the interest rates and terms you receive when shopping around with differentlenders.
When it comes to getting a mortgage for a home, a loan or lease for a car, or another type of personal loan, you’ll want to ensure you’ve built a strong score before applying if possible. The higher your score, the more favorable interest rate you’re likely to receive, which can help save you thousands over the life of aloan.
Credit Cards
Similar to applying for a mortgage or personal loan, your credit score comes into play when you’re opening a credit card, impacting the interest rate and your credit limit for theaccount.
Building good credit can take time and a credit card is a good place to start. Your first credit cards are likely to have lower limits and higher interest rates while you build your lending profile, so it is important to ensure you pay off the full amount each month and only spend what you canafford.
Allowing a balance to carry over on your cards will cost you more in the long run in interest while also bringing your credit score down and potentially impacting other loanrates.
Other Bills
Your credit and information from credit reports can also impact a multitude of other items, including whether a landlord approves your rental application, opening of accounts with utility or cell phone providers, and whether an insurance company is willing to issue a policy to you and at whatrate.
Employment Applications
While potential employers don’t have access to your credit score, they can access certain details from your credit report with your permission in some states. Not all employers run these checks, but it is another reason it is important to maintain goodcredit.
Your credit score having such a large impact on a wide array of items only underscores the importance of building a strong financial acumen and confidence in your money managementskills.
It’s never too late to build your financial repertoire and work to improve your credit score to achieve your financial goals. Start with small things like ensuring your credit card balances and other bills are paid in full each month to help keep your payment history and debt to credit ratiofavorable.
If you feel you need more help building your financial knowledge, there are a variety of free resources available online, including interactive learning modules that can help you gain new skills or brush up on the basics to put you on a path toward your long termgoals.
FAQs
It can impact the interest rates you're offered on loans for a house or car, insurance policy terms, employment applications and more.
How does your credit score impact you financially? ›
The riskier you appear to the lender, the less likely you will be to get credit or, if you are approved, the more that credit will cost you. In other words, you will pay more to borrow money. Scores range from approximately 300 to 850.
How does credit help me achieve my financial goals? ›
A good, very good or exceptional credit score can unlock the door to many opportunities and help you meet your financial goals. You'll likely qualify for lower interest rates and better terms on credit cards and loans, such as a mortgage or auto loan.
Why is it important for banks to know your credit score? ›
Companies use credit scores to make decisions on whether to offer you a mortgage, credit card, auto loan, and other credit products, as well as for tenant screening and insurance. They are also used to determine the interest rate and credit limit you receive.
Does your credit score affect finance? ›
The higher your credit score is, the more likely it could be that a mortgage, credit card, personal loan, overdraft or car finance application will be accepted.
How does credit scoring impact financial decisions? ›
A higher credit score generally indicates lower risk, making it more likely for you to secure credit and receive favorable terms. Interest rates: Credit scores also influence the interest rates you are offered.
How can credit score affect your daily 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.
How can your credit score impact your financial situation on Quizlet? ›
Your score can mean approval or denial of a loan. It can also factor into how much you're charged in interest, which can make debt more or less expensive for you.
How is credit score beneficial? ›
When you have a good credit score, you're more likely to meet lending approval guidelines and borrow money when you need it most, explains McClary. This can help if you're ever in a pinch and need to open a credit card. You're more likely to qualify for a 0% APR card like the Citi Simplicity® Card (see rates and fees).
How do I achieve my financial goals? ›
Three Ways to Help Achieve Your Financial Goals
- Define your goal clearly. A goal is the first step that sets you on a path. ...
- Identify your time frame. Categorizing your objectives by short-term, medium-term, and long-term financial goals provides focus to your plan. ...
- Monitor your progress.
It allows you to make large purchases (such as a home or a dental practice) that you otherwise would not be able to afford if you were paying in cash. However, it is very important to understand wise borrowing strategies and money management when utilizing credit.
What is the purpose of credit scoring for banks? ›
Credit scoring is a statistical analysis performed by lenders and financial institutions to determine the creditworthiness of a person or a small, owner-operated business. Credit scoring is used by lenders to help decide whether to extend or deny credit.
What affects your credit score the most? ›
Most important: Payment history
Your payment history is one of the most important credit scoring factors and can have the biggest impact on your scores. Having a long history of on-time payments is best for your credit scores, while missing a payment could hurt them.
How does your credit score impact your financial future? ›
A good credit score can impact multiple areas of your life, including your ability to rent or buy a house, job opportunities, loans, and more, so establishing a good credit score now will pay off in the future.
How can a credit score hurt you financially? ›
Poor credit can make it harder to get car and home loans, and to qualify for a regular credit card—you may need to start off with a secured credit card to build your credit. Even if you are offered a loan, chances are it will be at a higher interest rate.
Is a 900 credit score possible? ›
While achieving a CIBIL Score of 900 is technically possible, it is extremely rare. Scores above 760 are considered very good or exceptional, providing significant benefits such as lower interest rates and higher chances of loan approval.
How does credit score affect money factor? ›
For an individual applying for a car lease, demonstrating a strong credit score will decrease the money factor of the lease, thus reducing the monthly lease payments. It is argued that the money factor is a grey area in the car lease industry, primarily because many customers do not understand the concept.
How will your credit score impact your financial life in the future? ›
A good credit score can impact multiple areas of your life, including your ability to rent or buy a house, job opportunities, loans, and more, so establishing a good credit score now will pay off in the future.
How does credit risk affect financial performance? ›
Credit risk is an internal determinant of bank performance. The higher the exposure of a bank to credit risk, the higher the tendency of the banks to experience financial crisis. In summary the important elements of managing risk include credit appraisal, diversification, credit control proper training of personnel.
