As someone who hasn’t always had the healthiest relationship with money, I thought for a long time that a credit score was just not something I would ever concern myself with. Good credit was for people who owned their homes and had fancy credit cards made of metal. What possible impact could it ever have on a creative 20-something living in a big city?
That, of course, ended up being a big gap in my thinking. I may be a car-less, house-less, Amex Black-less 26-year-old, but my credit score has influenced my life more times than I can count.
Nowadays, I’m a bona fide credit geek. I always look forward to the monthly Mint email notification telling me I have a new credit score available — seeing it go from the “okay” to the “good” range is one of the best mood-boosters I’ve ever experienced.
But I didn’t get to be as enthusiastic about building credit as I am now overnight; I had to experience first-hand just how relevant credit was in my own life. For example, a few years ago, when I needed to apply for a balance transfer credit card to help take care of some consumer debt I’d built up, I was relieved to have a good enough credit score to qualify for one. Otherwise, I would have had to pay much more in interest in the long run.
There are plenty of other ways that credit influences your life that you may not have even considered. To explore further, I reached out to some of the top credit and lending experts out there — here are their top five lesser-known ways credit can impact your life.
Your shot at nabbing a great apartment
When it comes to housing, good credit isn’t just a concern for homeowners — it’s a huge concern for renters, too.
“While a low score may not lead to the denial of an application, it will likely lead to a higher total cost than paid by someone with a higher credit score,” says Ian Atkins, Chief Financial Analyst of FitSmallBusiness.com. “A landlord may require a deposit that might otherwise be waived.”
I personally experienced how credit affects your lease application back when I made the move to New York City. Because I didn’t yet have a proven income or a solid credit history to back me up, I had to have a parent co-sign the lease as a guarantor — an option that’s certainly not available to everyone. If you work on building your credit, you’ll have more control over your housing situation, regardless of whether you own or rent.
The health of your small business
If you’re a small business owner, credit might drastically affect your ability to stay afloat. Healthy credit is one of the top factors that influences whether or not you can qualify for a business loan.
While not every business owner depends on external funding sources, not having access to them can seriously impact the cash flow of your business. And good credit isn’t only important to traditional business lenders like banks.
“Credit (or no credit) can really make a difference with a business owner’s cash flow,” says Laura H. Stover RFC®, CEO Investment Advisor at LS Wealth Management, LLC in Bryan, OH. When you apply for business financing, “alternative lenders typically look at anywhere from three to six months of bank statements, a good history of paying on time, and debt-to-income ratio calculations, which determine the amount of a loan or line of credit the individual would receive.”
It’s impossible to grow a business without access to capital, and a good credit score makes that much easier to come across.
Financing a smartphone
Most of us may not be small business owners, but I’d bet the vast majority of us owns a smartphone. Heck, you’re probably reading this on one right now — and chances are, thanks to the ever-increasing costs of pocket technology, you didn’t buy it outright.
Financing a smartphone means — you guessed it — having your credit checked. “Even if you can pay up front or go with an older phone, most cell phone companies require a credit check before they extend service,” says Professor Alexander Lowry, Director of the Master of Science program in Financial Analysis at Gordon College. “If you have poor or no credit, you might be required to pay a down payment before getting your phone.”
Simply put, good credit means this little piece of your budget could be much less expensive.
The amount you pay on utilities
Everyone needs access to utilities like electricity and water, but having good credit might (once again) make a difference in how much you pay the providers up front.
According to Professor Lowry, “Utilities such as cable, electricity, phone and water are essentially short-term loans because you use the services before you pay for them. Utility companies want to make sure they will be paid, and almost always run a credit check when you apply for new service. While basic services such as electricity and water usually have to take any customers, all utility companies are generally able to collect a deposit. Customers with good credit may not have to make a deposit, while those with poor credit often need a deposit worth several months of services.”
Once again, good credit means saving yourself some money.
The amount of mortgage you can secure
You probably understand how your credit score will impact the interest rate you get on a mortgage if you ever choose to buy a home. But that’s not the only part of a mortgage that it impacts.
"Our report shows that the benefits of improving your credit score go beyond lower interest rates and include access to higher loans amounts and higher LTVs," said Tendayi Kapfidze, LendingTree's Chief Economist and author of the organization’s May report on mortgage offers. "This allows a home buyer to be more competitive in a marketplace with limited inventory and heightened competition among buyers."
A good credit score means increasing your access. You’ll have more opportunities available to you, whether that be a wider price range of homes to choose from or the ability to be more selective when choosing a rewards credit card.
And the good news is that, while building good credit doesn’t happen overnight, anyone can do it — and the sooner you start working at it, the better.
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