4 Reasons Your Credit Matters Beyond Borrowing
September 07, 2023
If you were asked for your credit score right now, would you know the answer? Don’t sweat it if you’re unsure, you’re not alone. According to a survey of 2,000 Americans conducted by OnePoll in May of 2023, one in ten Americans have no idea what their credit score is, and one in five wouldn’t know how to check it.
While credit scores are most commonly associated with borrowing money, their impact extends far beyond loans and credit cards. In fact, your credit score plays a pivotal role in various aspects of your financial life, influencing insurance rates, employment opportunities, housing prospects, and even your ability to handle unexpected expenses. Let’s break these impacts down below.
- Your Credit Score Can Affect Your Bills
Beyond borrowing, your credit score can have an impact on your wallet right now. Your credit score is a snapshot of your financial behavior. It reflects how responsible you are with managing credit and debt; which is why in the state of Texas your credit score can affect various aspects of your financial life including:
Insurance Rates: According to the Texas Department of Insurance, Insurance companies may use your credit information to decide whether to sell you insurance and what rate to charge you. Many insurance companies use credit-based insurance scores to help determine your auto and home insurance rates. These scores are based on your credit history and are used to predict the likelihood of you filing a claim. A higher credit score is generally associated with lower risk, so individuals with higher credit scores might qualify for lower insurance premiums.
Utility Bills: In Texas, utility companies can use your credit score to determine whether they will require a deposit before providing you with services like electricity, water, or natural gas. A higher credit score might help you avoid having to pay a deposit or qualify for a lower deposit amount.
Cell Phone Plans and Contracts: Some cell phone providers may check your credit score before offering you certain plans or contracts. A better credit score might give you access to more favorable terms or lower upfront costs.
- Your Credit Score Can Open or Close Doors to Employment Opportunities
Believe it or not, some employers include credit checks as part of their hiring process. Especially for positions that involve financial responsibilities or access to sensitive information, a candidate's credit history can be indicative of their reliability and integrity. While it's not the sole factor in the hiring decision, a poor credit score could potentially raise concerns for employers. Maintaining a healthy credit score can thus enhance your chances of landing certain job opportunities.
- Your Credit Score Could Be the Key to Unlocking Housing Prospects
Renting an apartment or applying for a mortgage? Your credit score will be on the landlord's or lender's radar. Landlords use credit scores to evaluate whether you're likely to pay rent on time. If you’re planning to rent, a higher credit score will make you a more attractive candidate for renting a property, potentially improving your chances of getting the apartment or rental property you want.
- Your Credit Score May Help Navigating Financial Storms and Uncertainties
Life is unpredictable, and unforeseen expenses can arise at any moment. Whether it's a natural disaster, medical emergency, or home repair, having a solid credit score can make a world of difference. In emergencies, quick access to credit or loans can help you cover essential expenses until you're back on your feet. Without a decent credit score, you might face difficulties securing the necessary funds, making an already challenging situation even more stressful.
Financial hardships can happen to anyone. If you find yourself struggling to make payments due to job loss, medical expenses, or other challenges, it's crucial to take proactive steps. Ignoring bills or letting your credit score plummet can have long-lasting consequences. Instead, contact your lender or creditors as soon as you anticipate difficulties. Many lenders are willing to work with you to create a manageable repayment plan or offer temporary relief options.
Your Credit Score’s Relationship to Interest Rates on Loans
If you do plan to borrow in the near future, your credit score should be on the forefront of your mind. Your credit score can significantly influence the interest rates you're offered on loans, including mortgages, auto loans, and personal loans. In turn, this affects your monthly payments and overall financial commitments. If you’re wanting insight into how your credit score and other factors may affect your ability to borrow or to see a snapshot of what borrowing might look like for you, These free financial calculators are available as a great tool.
Rebuilding and Improving Your Credit
If your credit score isn’t where you’d like it to be, you can begin taking steps to change that. At Education First Federal Credit Union, we can help you improve your score. With our SmartScore program, you can set up a complimentary visit with one of our member service representatives at a branch near you to review your credit report and work through a personalized plan to improve it. Rebuilding your credit after a setback might feel daunting, but it's entirely possible and we’re here to help.
If you want to kickstart your credit score facelift immediately, you should start by creating a budget that aligns with your financial situation and cutting unnecessary expenses. Pay your bills on time, as consistent on-time payments have a positive impact on your credit score. If you have credit cards, aim to keep your credit utilization low - ideally below 30% of your available credit limit. Over time, responsible financial behavior will contribute to a healthier credit score.
Up your financial literacy game (literally)
Your financial well-being is our priority. If you’re still feeling uncertain about your credit score or any aspects of your personal finances, it may be time to expand on your financial literacy. Education First has partnered with Zogo, a gamified financial literacy app that rewards you with gift cards for completing bite-sized financial literacy lessons on intelligently saving, spending, and managing your money. This may be just the tool you need to begin your journey to financial security. Download the app for free in the Apple or Google Play Store, and enter access code EFFCU. That’s all it takes to get started learning about the financial topics that are most important to you.
Remember, your credit score isn't just a number; it's a reflection of your financial responsibility and a powerful tool that influences various aspects of your life. From insurance rates to job opportunities, housing prospects to unforeseen expenses, maintaining a good credit score can provide you with a safety net and open doors to new opportunities. Whether you're actively seeking a loan or not, prioritizing your credit score is a wise decision that can lead to greater financial security and success.