The more you learn about your finances, the more you’ll discover many aspects of them are intertwined, and they have a great deal of effect on each other in both good and bad ways. Knowing that, it’s important to take into account your entire financial picture – what you earn, how your credit ranks and what you pay each month in fixed and unfixed expenses – when making any important money decision.
For example, it’s common knowledge that paying bills on time, meeting minimum payments, and avoiding overcharging on credit cards can all positively factor into your credit score. Therefore, many of us aim to do what we can to boost our score. However, you may be a bit surprised to learn that your credit score can impact what you pay when it comes to certain monthly bills. In fact, let’s just go ahead and call it “circular financing,” since it seems like it all – the good, the bad and the ugly – comes back around. Let’s look at a list of common monthly bills and learn how your credit score can impact what you pay.
1. Mortgage payments.
For many people what they pay each month on their home is their biggest expense so I thought it important to start here. Bottom line? What you pay each month is directly affected by the health of your credit score. The higher it is, the lower your interest rates. That being said, you can guess what a low credit score will do for your interest rates, and it’s not good. Know your score and what it means in terms of interest rates before you apply for a home loan.
2. Rental rates.
This may come as a bit of a surprise to some, but you should be prepared if you’re scouring the rental market, as what you initially think is your price range ultimately may not net you what you expect. When you’re submitting your lease application, a potential landlord can run a background check which includes information about your credit report. Should he find something he deems a financial red flag, the landlord could apply a higher rent as opposed to someone with healthier credit or deny you the property all together. However, it’s important to note a landlord can’t run a background check without your permission, but if you limit his access to your financial history you may run the risk of losing the rental. Ultimately it’s up to you, which makes it that much more important for you to know what’s in your credit report so you can make an informed decision when it comes to allowing background and credit checks.
3. Electricity, water and gas service.
Companies providing these basic services will likely check your credit before counting you as a customer, and what they find in your report can have implications. The worst-case scenario is they determine your credit is in such bad shape they deny you service all together. If your case isn’t that extreme but your financial health still raises concerns, utility companies may ask for a larger security deposit or even a co-signer on your account before they approve you.
4. Credit cards.
Unfortunately most credit cards come with an interest rate attached to all your monthly purchases. To make sure you secure the best rate possible, look no further than your credit score. It’s simple: The higher your score, the lower your interest rate will be.
5. Automobile loans.
Much like how credit card interest rates are determined, so it is with the interest rate you’ll receive when taking out a car loan, thus impacting how much you’ll pay each month to travel the open road. While it’s true that many car dealerships will advertise end-of-the-year blowout sales with zero-percent financing available, only those few with stellar credit will qualify. Most likely you’ll be paying an interest rate that’s in direct correlation to your credit score. Still, it’s important to shop around as rates will vary from lender to lender, but you can count on a low score resulting in less-than-desirable interest rate.
6. Automobile insurance.
If you have a car you’re required to purchase insurance, so it’s in your interest to nab the best rate you can. Once again, your credit score plays a big role in what that rate will be, potentially to the tune of paying more than twice as much as someone with a favorable score if yours ranks on the low side.
7. Homeowner’s insurance.
This one is a bit different from how other interest rates are determined. Homeowner insurers have their own credit-based insurance rankings to determine what interest rate you’ll receive, but their information is culled from your credit report so they’re looking at the same information you’re privy to. In other words, the same issues that ding your credit score will also have a negative effect on your homeowners insurance rates.
As you can see, a credit score is a crucial element of your financial health and a big factor in how much you’ll be paying for monthly bills most households incur. Knowing where you stand will not only eliminate surprises but also will allow you to make positive changes where possible. If you require any assistance to boost your score, the American Credit Foundation team is here to help. Click here for a free consultation.