In a country where financial literacy is not required for post-secondary students, it is not hard to understand why so many American students are currently struggling with money management and wealth generation in our early adult years. Even aspects around some of the simplest facets of personal finance, such as one’s credit score, are a mystery for many until they leave college or start looking into purchasing a home. Although it may seem trivial, your credit score is actually a key financial asset that can impact you in a variety of ways. A credit score is a three-digit number that relates to how likely you are to repay debt. Banks and lenders use your credit score to determine or not they can loan you money to purchase an item. According to Credit Karma, these are the key items that are analyzed in order to determine your credit score:
- Your payment history
- How long you’ve had credit
- The types of credit you have (credit cards, auto loans, student loans, mortgages, etc.)
- Your credit limits and how much of those limits you’re using
- How much debt you have
- Hard inquiries on your credit report
Many people have made poor choices when it comes to their creditworthiness. Some of you may be in situations where you signed up for a college credit card thinking it was free money until collection agencies started calling. Some of you may have just “forgotten” to make some payments because you didn’t update your mailing address so you had no idea bills were being sent to you. Whatever the issue is, having a low credit score (anything below 620 points) is not cute because it could prevent you from building the life you truly want from a financial perspective. Keep reading to find out why getting your act together with your credit score is critical right now.
You need credit to live on your own
Once you’re ready to move out from your parent’s house (thanks for all the free meals mom!), you’re going to have to prove to someone else, whether it be a private owner, leasing company or a mortgage broker, that you are financially responsible enough to keep a roof over your head and get your payments in on time. That financial responsibility is based on how much money you currently make, how many financial assets you currently have, and your credit score. Without a healthy credit score, homeowners and management companies will either require a hefty amount of money upfront or be very untrusting about renting to you because they may think that you won’t pay on time, meaning that they lose or get very little return on their investment. Obviously, this means you need to have a good credit score. Don’t think you have to miss out on things to have a good credit score, though. You can still get a credit card – if you apply for a credit card with SoFi, for example, applying won’t impact your credit score. If you then use the card sensibly, you could actually build your score rather than reducing it. You can visit https://www.sofi.com/credit-card/ for more information on this.
Let’s say you have a derogatory item on your credit report that’s dragging down your credit score. You could now easily dispute it on your own as a ScoreShuttle user. Their credit enhancing DIY software provides you with the tools you need to improve your scores on your own. Whether you need a better credit score to qualify for a personal loan, mortgages, or for financing a new car, ScoreShuttle has the right tools.
Your creditworthiness can impact things that are not financial
Your credit score is not only just important for getting a loan or a credit card; it can impact you in ways that are not financially related as well. Some employers also review credit history or perform credit checks to perceive what type of individual you are when it comes to your ability to execute on a project. If you are someone who has a lot of missed payments on your record or delinquent actions, they may interpret this behavior as you being someone who could miss deadlines or not perform well at work. This is especially key for jobs that are high-stakes and deal with money such as banking or government roles.
Another way that your credit score could impact you is when it comes to your relationships. Although strangers don’t have access to your credit history, the closer you get to people that you date the more you will be sharing about yourself to them, including your financial background. How you manage your money (or the lack thereof) could strongly impact your relationship, as your partner may consider you not to be financially reliable when it comes to building a family or managing day-to-day life together. Having a strong credit score proves to your partner that you don’t let things fall to the wayside and that you are prioritizing your financial future, which is critical given that finances are one of the number one things that lead to divorce.
Having bad credit has a domino effect
Improving your credit score doesn’t simply happen overnight; it does take time and requires diligence and patience. However, not taking action on improving your credit score can have a severe domino effect in your life or to the lives around you. If your credit score is bad and you end up in a situation where you need money urgently (such as for healthcare or a family emergency) it can become super hard to get a loan. You may find yourself in a situation where you are getting charged large amounts of interest or APR because lenders don’t think you will repay the borrowed money on time or ever at all. This could lead to you asking friends and family for money and creating tension if you aren’t sure or able to pay them back in a respectable timeframe. Poor credit can also block you from being able to get a decent car or to live in a safe neighborhood. It could also prevent you from just getting ahead in life overall just because you are unable to dig yourself out of a huge financial hole because you’re constantly living paycheck to paycheck because of bills.
Now is the time to snap into action when it comes to your financial health. To get more tips on how to boost your earnings, check out more posts in our earn section.