September 12, 2018
How Your Credit Score Impacts Every Aspect of Your Life
One thing that we most definitely don’t learn through our education system is the impact of credit on your life. Yet, as you know now, credit scores are much more than a record of your credit card payments. In fact, credit scores have an even more significant impact on our lives many of us think.
Credit Can Change Your Finances
People advise against amassing credit card debt all the time. Why? Because not only will you be paying interest on the balance you’re carrying (thus paying more for things you could have paid less for), but irresponsibly managed credit card debt can negatively affect your credit score.
This applies to any mismanaged debt. The two most common debts for millennials are credit cards and student loans. If any of this debt is mismanaged, such as ignoring payments, defaulting, or having the debt go to collections, the institution to which you owe that debt will report negative marks to the major credit reporting agencies.
Once this happens and your credit score drops, your financial options can narrow significantly. You will be hard-put to get approved for other lines of credit, car loans, mortgages, or other types of financial aid.
Because the economy is based on this credit system, this generally means that you will take much longer to develop financial independence. It also takes away many options for financial improvements that require bank assistance, such as starting a business, investing, and property ownership.
Your Score Will Decide Where You Live
Any legitimate rental agency or management company will run a credit check before approving you for a rental. If your credit is bad, at worst you be denied for renting the property. At best, you will be offered to sign the lease with a co-signer who has good credit or be required to pay a very large security deposit.
In other words, the threshold of access to many living spaces, especially in big cities, becomes much more difficult.
Aside from renting, your credit score will determine if you can get a mortgage to purchase a property. If you do get approved with subpar credit, you will be paying a much higher interest rate than those with good or excellent credit scores.
Higher Education Doesn’t Just Depend On GPA
The biggest obstacle to higher education in America today is the cost. You’ll probably have to take out a loan or two in order to pay for the tuition of that master’s degree you’re going for or the professional program you want to take to advance your career.
Student loans go through the same kind of approval processes as other loans, so your credit score is important here are well. You risk not being able to fund your education if you have bad credit.
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Credit Scores Can Impact Self-Worth And Relationships
Now we’re getting to the more intangible impacts of credit scores. As we’ve been over, credit scores are a gateway of access to almost every significant aspect of our functioning lives in society. So what happens when it’s not working out?
That’s when doubts of your own value and self-worth start to creep in. Credit scores can either liberate or trap you. If your credit score ends up trapping you, well, that’s a terrible feeling. It can be frustrating to constantly be denied or scrutinized because of a score associated with your name.
Those denials and scrutinies, by the way, can also affect your relationships. If you’re denied for a lease on a property rental, a student loan, a car loan, or anything similar, you’ll often have the option to bring on a co-signer with good credit to provide some assurance. The downside to that, though, is they are also now legally responsible for the debt that you’ve taken on. Not only could this get tricky down the road if the worst were to happen (you default on that loan), it also can change your relationship dynamics if you always need to rely on family or close friends to be approved for debt.
Credit Scores Can Be Nurtured
All this is a warning to those with no or new credit. To those with bad or mediocre credit, at least some of the ways that credit impacts your life are already familiar to you.
Luckily, no matter what position you’re in, you can always work to nurture your credit score into a healthy place. It may seem like a daunting task, but in the end, it will be well worth it and give you a lot more opportunities with a lot less worrying.
Know your credit score.
This is basic, but it can be intimidating to even look at your score, especially if it’s subpar. Do it anyway. And even more than that, make sure you know what elements of your credit history created that score. You need to know what’s good and bad before you can work to correct anything.
Focus on what you have now.
It can be tempting to just try and forget about your current debt and apply for new lines of credit or loans. Don’t make this mistake! Focus on keeping whatever you have now healthy and build positive credit from it. New inquiries for things like credit cards can be denied and may impact your score even more negatively.
Be on time.
It shouldn’t come as too much of a surprise that on-time payments are the largest factor in your score. If you’re having a hard time paying on time, try to see if you can cut down on any bills (TV packages, subscriptions) and create a schedule for more manageable payments. If your credit is struggling, the best thing you can do is to pay consistently on time over a long period of time.
Pay off debt.
Debt is like a 500-pound anchor that your credit score is dragging along. At a certain point, you may get used to the weight, but make no mistake, it’s best to work on paying debts down sooner than later. Your credit score will improve and you will feel much better.
Just like any other habit, your credit score is something you need to commit to paying attention to. Once you get the ball rolling it won’t seem so intimidating and you’ll feel worlds better about your situation. You got this!