There are many ways that having a bad credit score can effect you. In day to day life, a credit score is not something you may think about. As a young 20-something, you may not know how to establish a credit score or how your credit score will effect you in the future.
Here are some reasons that having a good credit score is important:
- Bad credit can cost you your dream job.
Many employers run your credit. Having a low credit score can disqualify you from jobs in banks, human resources, government agencies, among others. Employers who dig deeper into your credit history are looking for individuals who show a history of responsible and ethical behavior.
2. Bad credit can increase the interest you pay on a loan.
A low credit score can and will affect the rates you receive on consumer debt. Should you need a car loan for ‘x’ amount of money, your credit score will affect the amount of interest you pay on this loan (the one for ‘x’ amount of money). Interest is something we would like to avoid. Therein, keep your credit score high to minimize interest on consumer debt.
3. Bad credit can cause higher insurance rates.
One study shows that bad credit can increase your car insurance rate more than a DWI.
4. Bad credit can cause you to miss out on getting approved for the best Rewards Credit Cards.
From IWillTeachYouToBeRich.com (a great resource), there are many benefits to rewards credit cards. Bad credit can cause you to lose out on being approved for the best Rewards Credit Cards, including their associated benefits, perks, and hidden benefits.
5. Bad credit can increase your required down payment on apartments, cars, or houses.
Someone with bad credit constitutes an increased risk to landlords renting an apartment, an increased risk to an institution selling or leasing a car, and an increased risk to lenders, associated people, and anyone interacting with you in an area involving money.
Are you stuck? Here are some ways to improve or fix your credit score.
Steps to Improve Your Credit Score
- Make an effort to contact lenders and pay as much as you can towards past debts. If you have no missed payments, continue as you were, and pay every bill on time. EVERY BILL, this is very important. Pay ALL your bills on time.
2. Request your Credit Report from AnnualCreditReport.com. Check for any mistakes, misreports, or errors on your report. This is a free service, and you may contest any errors.
3. Keep your old credit cards open. The age of your credit history constitutes 15% of your credit score.
4. Keep your credit card utilization below 30%. Your credit utilization constitutes 30% of your credit score. A credit utilization of less than 30% is essential to having a good credit score. More information on that here.
5. Do not take out any loans without a repayment plan.
Here is a great resource I’ve found for how to rebuild your credit score if you’ve made a past mistake. It happens to the best of us, but nothing is unfixable.
Check out WiseBread.com:
This resource goes more into depth about fixing your credit score if that is something you are searching for.
Comment below with your experiences or advice!