Just like your fingerprint reveals every bit of information about you, a credit score reveals everything regarding your financial standing and how responsible you are in dealing with it. It indicates the level of responsibility that one has and allows you to appear more trustworthy to lenders if you have a good credit score.
It helps the lenders analyze the way you handle your life and help in predicting how you will treat their line of credit extended to you based on your financial history. This simple yet significant credit score can have quite a ripple effect on your ability to build wealth. Building and maintaining a good credit score not only allows you to enjoy the financial perks and benefits that come along with it but it also helps you to set yourself up for success in the future.
Therefore, you need to understand that neglecting a credit score and your credit history is not a mistake that you should be making. To understand the different ways and the different aspects in which a credit score can impact your life, here in this blog we have mentioned a few most common ways how it can impact your finances and your life altogether.
It can either save or cost you money
There might be a time when you are in need of a loan or other financial instrument for the purpose of investment, residence, or self-help. In order to be able to apply for a loan and get favorable terms on it, you need to show some evidence regarding your credit history, and a good one at that. Credit scores are used here to gauge the reliability and level of default risk on the person and the loan itself respectively.
A low score means you won’t be able to strike a good deal and would end up paying much more for the same loan, because of the higher interest rate charged on you, than the other person with a good credit score. This is because lenders like to hedge their bets; therefore, a good credit score can have a positive impact on your finances that will help you keep more money in your own pocket by the end of the day.
It can impact your insurance premiums
You need to get the property or asset that you bought from the loan that you took, insured for your own safety. This is the reason why your credit score is also used here for the purpose of calculating another metric called the credit-based insurance score. This metric helps in determining your insurance premiums, and if your credit score is a good one it will help you in saving money here.
It also helps the insurance companies determine if you have the capacity to pay on time if you have selected the installment payments option. Also, it has come to the attention of many insurance companies in the past few years that those with low credit scores tend to file for claim more often which poses a greater risk to the insurance companies. This is why, apart from the credit score, the insurance companies keep track of claims history as well to predict your reliability and financial capability.
Your score can influence your job and career
Yes, this is true! Nowadays with all the scrutiny and checks that an employer runs on its potential employees, running a credit score check has also been included in the list by some recruiters. This doesn’t mean that you would be altogether ruled out for the job, but simply means that your chances of getting hired may be affected.
This is especially true if being considered for a financial position. Being financially responsible could be important to a hiring decision and the level of financial responsibilities you would be eligible to hold in the office. It could also mean less pay and that you have to settle for a different position altogether. Having a good credit score, on the other hand, would benefit you in terms of the job that you are looking for and the career that you want to pursue, thus enabling a stable financial future for yourself.
Your monthly bills and payments will be lower
You might think of this as less important but saving money on your monthly bills because of a good credit score will help you a lot to build and sustain your financial stability. For example, a good score will help the utility company identify your ability to pay them, especially if you are moving to a new location. On the basis of a good credit score, which is checked by these utility companies which includes electricity, water, telephone and gas, they might even waive off the initial deposit that they require because of a good credit score and a credit history.
These small savings here and there will allow you to save more money in your pocket and thus will benefit you and your financial conditions in a way that you might have possible not imagined and not even calculated.
You can have a better retirement
Establishing a good credit score not only helps you throughout your adult and working life but will also help you after your retirement. During your working life, it will allow you to enjoy the perks of availing low-interest rate debt which can be paid off easily thus giving you more financial freedom. The money saved by not paying on higher debt costs can then be utilized for other purposes like investing for the future, for the time when you have retired and want to enjoy a good quality life.
Therefore, never underestimate the importance of a good credit score as it can positively impact the finances and your life.