Hidden Ways Your Credit Score Can Impact Your Daily Life
Common financial advice warns you to keep a close eye on your credit score, keeping it as high as possible to avoid the repercussions of a “fair” or “poor” score. You’re expected to engage in habits that improve your credit score, such as making on-time payments, utilizing only a portion of your available credit, and having a good balance of credit (preferably from long-term accounts). But how important is your credit score to your long-term financial future, really, and how could it impact your daily life?
Understanding Credit Score Ranges
First, you should understand the different between different credit score ranges. There are different types of credit score that exist, but your FICO credit score is the most commonly utilized (and what most people refer to with the generic term “credit score”). That score is between 300 and 850, and represents your relative level of trustworthiness for financial matters.
Experian (one of the three major credit bureaus) considers there to be five overall “ranges” of credit score, though other financial institutions or organizations may differ in where they draw the line:
- Excellent scores, between 800 and 850.
- Very good scores, between 740 and 799.
- Good scores, between 670 and 739.
- Fair scores, between 580 and 669.
- Very poor scores, between 300 and 579.
The average FICO score in the United States is 695, putting it in the “good” range, though 14 percent of the population is also “credit invisible,” meaning they don’t have any credit to speak of. This can happen if you don’t have a history of making payments, or any open accounts to your name. A number of factors affect your credit score, the heaviest being your payment history, and how much credit you use (your utilization rate).
Who Can Check Your Credit Report?
Your credit score (or lack thereof) can only affect you insofar as it is seen and understood by people around you. Accordingly, your credit will only impact your daily life through the people and organizations that have access to it.
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Your credit isn’t public record, which means your nosy neighbor can’t spy on you to see what your credit score is. But as a general rule, any entity that has a genuine business-related need to see your credit can examine your score. Those entities could include:
- Banks, creditors, and financial institutions. As you might suspect, almost any bank, credit card company, or other financial institution can check your credit score or run a credit report any time they need that information. Often, this happens when you attempt to open a new line of credit, take out a loan, or rearrange your accounts.
- Utility companies. Utility companies want to see what your payment history has been like to determine whether or not you’ll owe an initial deposit or extra fee, though your credit score shouldn’t affect the rate you pay on those utilities.
- Insurance companies. Insurance companies need to evaluate your level of risk, and your credit score can contribute to those calculations.
- Employers. Your employer won’t be able to access your credit score (or discriminate against you because of it), but they may be able to run a credit report, which can provide them with some information about your credit history.
- Landlords. Landlords also need to understand how likely you are to pay your rent consistently and on time, so they’ll check your credit score and credit history before approving your application.
These entities could run a “hard” check or a “soft” check depending on which information they need; hard checks are more exhaustive, and may ding your credit score if you run too many of them in quick succession, while soft checks provide a bird’s-eye view of your credit history.
What Your Credit Can Impact
So let’s get to the bottom line. What areas of your life can your credit score affect?
- Loan and credit approval. If your credit score isn’t favorable, you could be outright denied for a mortgage or a new credit card.
- Loan and credit rates. If you’re approved with a low credit score, you might be forced to pay a higher interest rate, or get fewer perks.
- Insurance rates. You could also pay more for home, car, life, and other types of insurance due to a low credit score.
- Utility deposits and fees. Extra deposits or fees may be necessary to get utilities hooked up at a new location.
- Apartment application approvals. A landlord could deny you access to a new apartment based on a bad credit history.
- Employment opportunities (to an extent). An employer can’t turn you down just because of a bad credit score, but it may be a factor in their decision.
- Relationships. Don’t forget your credit score can also affect your spouse’s or partner’s future—meaning a bad credit score could put additional strain on your relationships. In fact, one study by the Federal Reserve Board found that the bigger the discrepancy between two partners’ credit scores, the more likely the relationship will end within the first five years.
Ultimately, your credit score can impact your life in significant ways, though there are only a handful of obvious ways your credit will affect how you live on a daily basis. Its effects are often hard to perceive, but that doesn’t mean they don’t matter; take the time to improve your credit score by paying all your bills on time and in full, paying down your debts, and avoiding opening new lines of credit until you’ve mastered what you already have.