How Your Credit Score Can Affect Your Financial Future

A lot of people don’t know all that much about credit scores. Much less that their credit score can affect your financial future. That is until they attempt to get a loan or a mortgage. A credit score helps lenders to see how reliable you are with your payments so they can decide whether to give you a mortgage, credit card, loan etc, and the interest rate you’ll be charged for it. Using credit irresponsibly can have a huge impact on your financial future. Having a low score shows you are struggling, or something has gone wrong. While a higher score shows you’re responsible with a bright financial future.

Each person has their own score so if you’re applying for something joint like a mortgage both of your credit scores will be taken into account.  There are three major credit bureaus that most lenders use- Equifax^®, TransUnion^® and Experian^®. But as the scoring system is slightly different on each your score might not be identical. But it should be in the same ballpark.

Remember if you have a joint account you are linking yourself to someone else financially. So if they get into loads of debt and their score plummets it will have an affect on yours. So think carefully before opening a joint account with anyone.

How your credit score can affect your financial future

Your credit score is an important number to know, especially if you’re getting ready for something big like applying for a mortgage. There are things you can do to improve your credit score, but here is how your credit score can affect your financial future.

You may have to pay more interest on any credit you do take out

If a lender deems you as risky because your score is low then the credit will score you more. So you’ll pay more to borrow money than someone with a good credit score.

The difference even of 1% in interest can lead to you paying back so much more money in interest. On something like a mortgage this could be tens (or even hundreds) of thousands of pounds more.

Your credit score can affect your financial future with mortgage rates

Having a good credit score shows that you’re responsible and cater to your financial obligations. This means you’ll be more likely to pay back your mortgage payments without any issues. If you have a lower score then you’re a risky borrower and you may struggle to pay it back. This means you may be declined a mortgage entirely. Or if you do get one then the interest rates will be higher as you’re a risker lend.

Your credit score can affect your financial future with any credit card applications and payments

Much like applying for a mortgage, if you have a low credit score you may be declined for a credit card. Or if you do get one then you’ll be charged a lot of interest. We’ve all seen those adverts of lenders who will approve anyone for a credit card, but you may be paying back so much interest it’s not worth it. With a low credit score your provider may lower your credit limit, or even close your account. And it’s unlikely you’ll be able to get a credit card with perks, bonus’ and cashback like you get with some of the bigger providers.

It determines your eligibility for business loans

If you want to start a business, or expand your current one then the easiest thing to do is to get a business loan. But your credit score has a direct relationship on whether you qualify for one. Like any other loan, lenders use your credit score to give them an indication on whether you’ll be able to repay the loan. Lenders will look at your personal finances as an indicator of how you handle your business finances.

Your credit score can affect your financial future and your monthly bills

Most people are unaware that utility companies will check your credit scores. Providers like phone companies and insurance providers may charge higher fees or premiums if your credit score is low. And you may get asked for a deposit ahead of time if your score is low.

It can affect your ability to rent

Most landlords will do a credit check on you before accepting you as a tenant. This is to give them reassurance that you’ll pay your rent on time. And landlords will prefer tenants with higher credit scores. So you may find if you’re competing against someone else also looking to rent and your credit score is lower then you may lose out. Plus if your score is higher than you may be able to bargain a little with your landlord on the rent. If you don’t ask you don’t get.

Your credit score can affect your financial future and your employment eligibility

Some employers, especially those where you’ll be dealing with budgets or money, will ask credit agencies for your credit report before hiring you. They may not be able to see your exact credit score, but they’ll know about any debts you have. If an employer doesn’t like what they seem they can deem you a financial risk. So you may not get that new job or career change you’re after.

Your saving potential

You may have a low credit score because your debts and expenses exceed your income. This makes it almost impossible to pay off your existing debts and you’ll get into a cycle of paying off the minimum amount, being charged interest and never actually paying off the debt. If you’re in a position like this it can make saving virtually impossible. If your score is low then you’ll pay more interest which could get you into even more debt. So your credit score can affect your financial future and mean you’re not able to save towards anything tangible like property or your retirement.

Did you know the impact and how your credit score can affect your financial future?

Pin It