When asked in a recent Bankrate survey, “How often do you review your credit report?” 34% of respondents answered: “Never.” When we read that, our collective gasp could be heard round the world! If you’re one of the 34% who never checks your credit report – and by extension, your credit scores – chances are, you might not understand how much your credit score affects what you pay for credit. Let us count the ways…
1. Your Cost of Living
It’s always been excellent advice to pay your bills on time, every time. Nowadays, though, timely payments are even more crucial to your overall credit health. Why? Your credit score affects how much you pay, not only for a mortgage or an auto loan, but for just about anything – your smartphone, utilities, even your insurance premiums. “In fact,” according to Nationwide, “92% of all insurers now consider credit when calculating auto insurance premiums.”
2. Your Financial Freedom
You make sure to pay your bills on time every month, but are you overpaying in ways you might not realize? Your credit score affects what you pay for credit by way of the terms offered by the creditor. High interest rates are an example of unfavorable terms offered to those with less than perfect credit scores. For example*:
30-Year Fixed Mortgage with Excellent Credit Scores (760 or Higher)
Loan Amount: $350,000
Interest Rate: 4.322 %
Monthly Payment: $1,737 (principal and interest only)
Total Interest Paid: $275,167
30-Year Fixed Mortgage with Fair Credit Scores (620 – 639)
Loan Amount: $350,000
Interest Rate: 5.911%
Monthly Payment: $2,078 (principal and interest only)
Total Interest Paid: $398,239
Extra Interest Paid (compared to interest expected at a 760+ Credit Score): $123,072
That’s a difference in monthly payments of $341! More interest paid means less money in your pocket each month. When less money is leftover each month, your path to financial freedom could be longer and more difficult. Think about what you could do with an extra $341 every month?!
3. Your Lifestyle
Where you live, how you live, is affected by your credit score. Maybe you’re already living in your dream home with your dream car parked in the driveway. But we’d bet there’s another dream purchase on your list. That gorgeous new designer handbag? Or, perhaps, a new boat? Your credit score affects whether you’ll be able to sail away next weekend or sit on the shore wishing you could. What you can buy on credit is always dependent on approval and approval is dependent on how risky the lender sees you.
4. Your Career
Employers want to hire the right person for the job. One tool available to help them discern the good apples from the not-so-good ones is a credit check. In general, they’re looking for red flags that would indicate unethical standards or criminal behavior. However, if your credit score and/or credit report display a general lack of responsibility (using too much of your available credit) or untrustworthiness (habitually paying bills late), employers may send your application to the bottom of the pile or, worse, toss it straight into their circular file aka trash can.
5. Your Love Life
Marrying later in life or recently divorced? Ready to start dating? “1 in 4 people say that a poor credit score is a marriage deal breaker,” reports LearnVest. That’s right – even potential romantic partners want to review and analyze your credit score.
Prioritize Your Credit Health Just Like Your Physical Health
The benefits of good credit health cannot be overstated. Managing your credit wisely earns you higher credit scores. Those higher scores translate to lower costs to borrow money, which in turn increases the likelihood you’re living the lifestyle you’ve earned, well on your way to financial freedom.
Not sure about your current credit health? Haven’t checked your credit score or credit reports in over a year? Request your free credit report from www.annualcreditreport.com today. You’re entitled to one free report from each of the three major credit bureaus every 12 months.
* myFICO Loan Savings Calculator