The focus on UponArriving is obtaining some of the best rewards credit cards and so when I talk about the importance of credit, that’s usually the #1 reason why. But it’s good to be reminded of all the ways that your credit score can affect your daily life.
Some of these reasons involve being able to save tens of thousands of dollars in interest while others involve enjoying a higher quality of life. So here are several reasons why your credit score is important and how your credit score can affect your daily life.
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1. Mortgage Loans
This is one of the biggest reasons why you want to have a solid credit score.
First, you might not even be able to get approved for a mortgage if your credit score is very bad.
Second, if you do get approved, a lower credit score can cause you to only get approved for higher interest rates. When it comes to mortgages, the difference in interest rates could end up costing you tens of thousands of dollars. And that’s no exaggeration.
NerdWallet showed how slipping up on your bills could cause a 0.50% increase in interest rates on a mortgage that could end up costing you over $30,000! And that’s just a 0.50% increase. With more credit report hiccups you could easily end up costing yourself much more over time.
So in terms of financial consequences for home loans, the importance of maintaining a solid credit report can’t be reiterated enough.
2. Auto loans
The same logic applies to getting auto loans. Even if you get approved, you might miss out on better opportunities that could have saved your thousands of dollars in interest or perhaps even allow you an interest fee loan on a car.
I used the MyFico Loan Savings Calculator to see what the savings would look like on a $30,000 loan over a 48-month repayment period based on credit score.
The total interest paid for a 720+ score was $2,115 but for scores below 690, that total jumped to $4,167 in total interest (over $2,000 more). And that’s just a 30 point difference in the credit score. Things get much worse if you drop below 620.
3. Home and auto insurance rates
Both your home and auto insurance rates can be negatively affected if you have poor credit. In fact, homeowners with poor credit pay 91 percent more for homeowners’ insurance than people with excellent credit, according to a report.
In some states, such as California, Massachusetts, and Maryland insurers are prohibited from using credit to calculate homeowner’s insurance premiums but in states where it’s allowed, it can be a costly problem, since about 85% of home insurers use credit-based insurance scores in states where it’s allowed.
And in states that don’t prohibit using credit to calculate auto insurance premiums, 95% of auto insurers use credit-based insurance scores, according to the National Association of Insurance Commissioners.
4. Housing approvals
As many as 65 to 70 percent of landlords may pull the credit report and credit score of a potential tenant.
If you’re searching for an apartment or other housing you might be limited due to your credit score. If your credit is low, you might require a co-signer or be forced to put down a hefty deposit. In addition, this means you might be forced to live in areas that you’d rather avoid and might mean a lower standard of living.
5. Utilities, phone service, etc.
When it comes to utilities and phone service applications, your credit score is often checked. With horrible credit, you might be stuck with month-to-month pre-paid contracts with inferior service providers and have to deal with the results of that.
Or, just like with housing, some might require you to put down a large deposit to secure their services. Also, you might miss out on deals since consumers with the best credit often get better pricing on new phones than those with lower credit scores.
For example, T-Mobile stated 63 percent of Americans don’t have the 750 credit score required for the best deals in the cellphone industry. Typically, when you see language about “qualified customers” that’s an indication that a promotional offer depends on your creditworthiness.
Cell phone providers like T-Mobile appear to be becoming more accommodating to customers with lower credit scores so it’s not all doom and gloom if you have a poor credit score, but obviously you don’t want to rely on the accommodation of providers forever.
According to LearnVest, “47% of employers run credit checks on job candidates primarily to reduce the potential for theft and embezzlement, reduce liability for negligent hiring, and assess trustworthiness.” These checks are more common in industries that deal with money, healthcare, the government, and any kind of sensitive data or information that might involve a security clearance.
By law, employers are required to obtain explicit written permission to check your credit. And they likely won’t actually view your credit score, but a modified version of your credit report called an “employment screening” that omits some details.
Still, if you have many negative remarks on your credit report, you might run into trouble since it could signal to your prospective employer that you might not be the trustworthy and responsible candidate they are searching for.
7. Student loans
Finaid.org shed light on how credit scores affect student loans and it differs for federal loans versus private loans.
Federal student loans
For federal loans you usually don’t have to stress too much because “Stafford, Perkins and PLUS loans do not depend on your credit score.” The Stafford and Perkins loans are available entirely without regard to your credit history, which is pretty remarkable considering how huge those loans can be.
However, the PLUS loan requires that you don’t have an adverse credit history, such as “being more than 90 days late on any debt or having any Title IV debt within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off.”
Private student loans
Things are much more serious when it comes to private student loans, though. In the case of private loans,”borrowers with bad credit scores may have monthly payments that are 20% to 40% higher and pay two-thirds to 100% more interest over the lifetime of the loan as borrowers with excellent credit scores.” That’s a huge discrepancy.
Finaid also remarks that most education lenders break their interest rates and fees into five tiers, based on the borrower’s credit score. “About 20% of the borrowers get the best rate, followed by 35%, 20%, 10% and 15%. Each tier has an interest rate that is 1% or 2% higher than the previous tier.
This means that borrowers with the worst credit scores can have interest rates that are 5% to 6% higher than the interest rates charged to borrowers with excellent credit. The fees are also higher by as much as 9%, although some lenders roll higher fees into the interest rates.”
So while you can get by with having not-so-good credit with federal loans, getting private student loans can be a completely different ball game.
Bankrate recently conducted a survey and found that “nearly 4 in 10 adults say knowing someone’s credit score would affect their willingness to date that person.” And other reports have found strong correlations between strong credit scores and strong relationships.
I know a number of people who would definitely prioritize someone’s credit background when choosing to date someone since it many cases it can be indicative of responsible that person is in other aspects of their life.
Obviously, if you’re into someone, you’re probably into someone regardless of a 3-digit number, but I think that having a strong credit score can do nothing but help your chances in the dating world and beyond. It’s probably only a matter of time before credit scores are included in online dating profiles (if they aren’t already).
Plus, if you and your partner have solid credit scores, you can get much much further in travel hacking.
9. You will feel better
Having a good credit score has improved my sense of well-being and that’s not just the case for me.
Credit Karma in partnership with professors at the University of Virginia, surveyed more than 1,000 Credit Karma members and the found a strong positive correlation exists between credit score, an affinity for saving, and a sense of wellbeing.
Obviously correlation does not prove causation but I think it’s definitely true that a rise in well being accompanies an increased credit score.
Years ago, I dreaded checking my credit score and always just assumed the worst anytime an outcome depended on my credit. Now, it feels great to know what to expect when I check that FICO score and to know that it’s in good shape. I feel more in control of my life and don’t feel like I’ll ever be held back in life by what might be found on my credit report.
If you’re credit score isn’t where you’d like it to be, take that as a worthwhile challenge to accomplish something that will improve your life in many different ways.
It may only require a few months or it might take a year, or two, or three or more, depending on your circumstances, but repairing your credit report and gaining control of how things in your life are affected by your credit can be a very rewarding experience, both financially and psychologically.
Your credit score and report have the potential to affect you in almost every walk of life. Just about any major or minor financial commitment can be affected by them and end up costing you tens of thousands of dollars in the long-run not to mention a lot of stress and headache.
Thus, while maintaining a high credit score is crucial for award travel, it’s much more important to take care of your credit for the various needs you have in life. So do what you have to do to improve your credit score and just think of travel hacking as a an added bonus.
Cover photo: http://401kcalculator.org
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Daniel Gillaspia is the Founder of UponArriving.com and creator of the credit card app, WalletFlo. He is a former attorney turned full-time credit card rewards/travel expert and has earned and redeemed millions of miles to travel the globe. Since 2014, his content has been featured in major publications such as National Geographic, Smithsonian Magazine, Forbes, CNBC, US News, and Business Insider. Find his full bio here.