The world of credit scores can be a confusing and overwhelming one, especially when people talk about how important it is without explaining what it can actually be used for. If you don't yet know your score, check credit score with Credit Sesame, and read on to learn more about how your score can be used in everyday life.
Credit Scores Determine Credit Terms
There are several aspects of your financial life that get factored into a credit score, such as reliability making payments on time, having a long credit history, and using a variety of types of credit at a given time. A three-digit credit score based on these factors and more can help tell a story about the kind of person you are when it comes to money.
High credit scores paint the picture that you are a safe bet to anyone who may want to loan you money or rent an apartment to you, as they demonstrate that you are reliable and responsible with money. They signal that you are likely to pay the money back in a timely manner.
Low credit scores show that you may miss payments on a routine basis or take out more credit than you can reasonably handle. This signals that you may not be as reliable with paying back your credit balance, which can either scare creditors off completely or give you a loan with a significantly higher interest rate.
Credit Scores and Mortgages
One of the most common reasons a credit score is used is to determine mortgage terms when an individual or family decides to buy a home or property. A person with a high credit score may be able to secure a 30-year mortgage with an exceptionally low interest rate, potentially saving tens of thousands of dollars in interest over the course of the mortgage.
Those with low credit scores can usually still get a loan, but it will likely come with a much higher interest rate.
Insurance
Many insurance companies, whether car insurance, life insurance, or anything else, check credit scores before taking you on as a client. The insurance game is all about risk, and companies may be less likely to insure you if your credit score indicates that you may be a risky client.
Car Payments
Most people can't afford to purchase a car with cash, so they have to take out a car loan with a bank or other creditor. This results in monthly payments until the car is completely paid off and owned by you outright. With low credit scores, your car may end up costing you thousands of dollars more than the original asking price because of high interest rates.
Credit Card Terms
There are plenty of shiny new credit cards on the market that promise big rewards for people who spend large sums of money in the months after they sign up. When done correctly, rewards credit cards can provide plenty of benefits in terms of cashback, miles, or discounts.
Unfortunately, the most credible and best rewards cards are reserved for those with very good or excellent scores. There are rewards cards available to people who don't have high credit scores, but their payouts are often less exciting and helpful. Either way, making regular, on-time credit card payments is vital for raising or maintaining your credit score.
These are just a few of the many ways your credit score may be used throughout your life, and it's clearly important to prioritize raising your credit score if you are currently unhappy with where it sits. Raising credit scores takes a lot of diligence and time, but the payoff can be immense.
