Understand How Your Credit Score Affects Monthly Bills
For better or worse, your credit score can have a wide-ranging impact on many aspects of your life, even those not obviously related to credit, such as your cable or cell phone bills. Many of our past articles have discussed how to raise your credit score, which ensures that you can secure loans at the best possible rates.
This time, we’ll take a look at how your everyday expenses can be, at least in part, a reflection of how well you’ve managed your credit and how responsibly you handle your bills.
In other words, even if securing new credit isn’t on your radar in the new future, there are still several reasons to make sure your credit score is at its healthiest. Here are seven everyday bills that may be affected by your credit score:
- Utility bills. This encompasses electricity, cable, phone, Internet and water rates – pretty much everything you need to run a home in this day and age. Of course there are standard base fees that apply to all of these services, and these can vary based on what type of plan you purchase. However, when you apply, the utility companies take a peek at your credit to determine whether or not they will charge you a pricey security deposit. If you have especially bad credit, some utility companies my require you to secure a cosigner or some other type of third-party guarantor in case you don’t pay on time. Either way, it’s a hassle you should aim to avoid.
- Rent. Apartment complexes, condominiums and other rental properties typically advertise rental rates. But if you’ve ever been apartment shopping, you probably noticed that someone asked you to sign off on a credit check during the application process. This is because potential landlords want to review your credit history to determine your final rental price and the amount of your security deposit (hint: the worse your credit history is, the bigger your security deposit will be). The landlord may even use your credit report to decide if they even want to rent to you at all. It’s important to know you have the right to refuse a credit check — but the landlord also has the right to refuse your application.
- Home and car insurance. With few exceptions (check your individual state laws for specifics) companies that offer you insurance can raise your rates based on financial activity reflected in your credit score, or worse, refuse to cover you at all. In the case of car insurance, some carriers can set your rate more than half as much as others if your credit is in bad shape. Such insurance is legally mandated so it’s important to make sure you credit is as healthy as possible before you buy a car or a home. If your credit score isn’t where you want it to be, it may behoove you to delay your purchase until you can move your score to where you need it to be.
- Future employment. Didn’t see this one coming, did you? It’s true, though. Potential employers might take a look at your score to see how you stack up against other applicants. The way they see it, the more responsible you are with your money, the more responsible you’ll be on the job.
- Your car note. If you’re financing a car, the dealership will analyze your credit history, usage, and overall credit health when determining your monthly payments and interest rate. Generally the lower your score, the higher your rate. It’s also important to address those loudly hyped “zero-interest” deals that are often trotted out at the end of the year. These do indeed exist, but they’re only available for folks with excellent credit. So don’t get sucked into car dealerships with hopes of low or no interest only to walk out with a monthly payment with costly interest attached.
- Credit card payments. Your interest rate will be linked to the health of your credit score and will directly impact how much your monthly minimum payments amount to. But remember, your minimum payments don’t only rise because your balance increases. It can also jump if your lender increases your interest charges, which could happen should your credit score fall.
- Your mortgage. If your credit score is low, your monthly mortgage payments will be higher. This is important because your home is likely the highest-priced item you own that comes with interest, so it’s crucial to secure the lowest rate possible. What’s more, if your lender determines your debt to equity ratio is too high, you will have to purchase mortgage insurance, which could mean hundreds of dollars more each month. Ouch!
Again we see the significance and far-reaching impact of your credit score on all aspects of your financial life. If your score could use improving and you think you need professional assistance to get it done, the team at American Credit Foundation can help.