Many people think their credit score is only important when applying for a credit card or a loan but it actually might be impacting you financially where you don’t even realize it.
Your credit score is pretty important, it plays a huge role in many financial situations you’ll encounter, and it follows you throughout your life. The higher the score, the better, with the low being 300 and the max being 850, Carl Carlson, CEO of Carlson Financial said.
We all know that someone with a low credit score might not be approved for a loan or a new credit card, but what if you don’t plan on borrowing money?
Even those with low credit scores can be approved for credit, but they will have to pay higher interest rates, meet specific conditions, or put down deposits for things like utilities, Carlson said.
Your score can affect your insurance rates and cost you hundreds of dollars per year in additional premiums. Also, employers are increasingly checking applicants’ credit reports and might use it to gauge responsibility, whether or not that’s accurate.
Carlson said as you increase your credit score, it opens access to better credit products and paying less to use them, for example, 0% interest car loans.
If you experience something like foreclosure or bankruptcy it will stay on your credit report for seven years, hurting your credit score the most early on, Carlson explained.
There is no magic formula to build it back, you’ll need to look at what got you into trouble in the first place and work on fixing that first. In the meantime, continue to pay bills on time, work on paying down debt and try not to use more than 30% of your available credit, i.e. if you have a credit card with a $10,000 limit, try to keep the balance under $3,000. You also don’t have to close out unused credit cards because they might help you by showing a longer credit history.
Carlson said many free credit reports are legitimate and you should be checking your credit score regularly to make sure you’re on track.
This is called a “soft-inquiry” and won’t hurt your score. On the other hand, when you apply for credit and a lender pulls your score, this is a hard inquiry and could ding you a couple points, so Carlson suggests being selective about applying for credit.