Most people don’t spend a lot of time thinking about their credit scores. There are so many details to keep track of in life, and a credit score might seem like a figure that doesn’t have much relevance to everyday life. However, your credit score is a layer running beneath your whole financial life.
It determines whether or not you’ll be able to borrow money (and at what price), how much access you’ll have to good housing and jobs, and how much money you’ll likely be able to save over your lifetime. We’ll break down these ideas below to help you appreciate the importance of a credit score.
3 Reasons To Pay Attention To Your Credit Score
#1. Borrowing Money
Your credit score is perhaps most relevant to the price and availability of personal loans you may be able to receive. This link has more detail: http://aaacreditguide.com/credit-scores/, but we’ll cover the general points here.
Basically, if you have poor credit, most lenders won’t lend to you because low credit is usually associated with borrowers who will have difficulty keeping up with their monthly payments. If a lender will give you money, they’ll charge you high interest and fees to make up for the possibility that you’ll default on the loan.
This alone is reason enough to spend some effort improving your credit score, as higher interest will cost you tens or hundreds of thousands when you consider your total payments on mortgage, auto, student, and other personal loans.
Just look at the calculator below as proof. Play around with the interest rate and see how much a higher interest rate costs you.
#2. Jobs and Housing
When you apply for a job or a lease on an apartment, the employer or landlord is allowed to look at your credit score. The credit score is a general gauge of personal financial responsibility. If it’s low, your employer may want to select an equally qualified candidate who has a good credit score.
If you’re trying to get into a rental house, the landlord may decide to give the house to the candidate with the highest credit score, simply because they seem like they’ll be more likely to always pay their rent on time.
As you can see, having a poor credit score can cause you to miss out on some big opportunities in life.
#3. Lifetime Savings and Wealth
On the one hand, bad credit causes you to pay more for loans, like your mortgage or the financing of your car. This will make you pay more every single month than your friend who has a good credit score.
This is money that you can’t save, invest, or use to improve your life in other ways. It’s just gone. On the other hand, as we’ve already described, bad credit can keep you from getting the job you want, driving down your earning potential.
These factors combine to keep people with bad credit from growing their wealth and improving their situation in life.
At the end of the day, your credit score isn’t just a way of keeping track of your personal credit history, it’s a barometer of how well you’ll do financially for the rest of your life. If you want to build wealth and freedom, start improving your credit score with sound financial practices today.