Most people know that having bad credit can affect your chances of getting a credit card or loan. However, many people might not know that a bad credit score can affect you in other ways as well.
Whenever you apply to get a mortgage, car loan or other loan, the lender will pull a copy of both your credit report and credit score. This tells the lender your credit history and shows how big a risk you will be.
If your credit score is high (generally 740 or above on the FICO system, which gives scores of 300 to 850), you will have little trouble getting a loan and you will be offered the best interest rates.
On the other hand, if your score is in the low 600s or below, you may have a hard time getting loans and you certainly will pay higher interest rates.
The same goes for credit cards. Those with the best scores qualify for cards with lower rates, higher credit lines and more perks, while those with low scores get higher interest rates, lower limits and fewer perks.
Other uses of credit scores
While your credit score is used mostly to determine your eligibility to borrow money, there are a couple of other common uses.
Many insurers use credit scores as one aspect of their insurance scores. This is because research has shown that people with higher credit scores are more responsible in their everyday lives, making them less risky to insure.
If you have a low credit score, it could translate into higher rates for automobile or other insurance.
Some employers may also do a credit check on you as part of a background check. Again, a credit score can indicate how reliable and responsible you are.
Employers in certain industries, such as the financial industry, also use credit checks to assess how much a risk an employee is for theft. For example, a casino or bank might shy away from hiring someone who has a lot of debt that they are having a hard time repaying.
Changing your fate
If you have a low credit score, it doesn’t have to dog you forever. There are several things you can do to improve it.
The first thing you should do is to bring any past-due accounts current. Late payments have an immediate effect on your score and eliminating those will give you a boost.
You should also work to pay down debt. Not only will this improve your score by lowering your debt ratio, but it will also save you money by reducing the finance charges you pay.
Also make sure to continue using credit responsibly. Pay your bill in full if possible each month and always pay on time.
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