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Most Americans — 86%, in fact — have a credit score.1 What are the consequences of good or bad credit? It turns out, there are quite a few. You might be surprised by how many aspects of your life can be impacted by this number.
Benefits of good credit
A good credit score (or, more specifically, FICO score, which is the most widely used credit score2) is defined as anything above 700 on a scale of 300 to 850, whereas "bad" credit is a score of 600 or below.3 A good credit score reflects on-time payments, a low overall debt load, and a history of financial prudence.4 Because of this, it's used by a variety of businesses to learn whether you handle money responsibly.
Getting credit at favorable terms
"Good credit" makes it easier to qualify for many types of loans, such as credit cards, mortgages, and auto loans.5 Even if you do qualify for a loan with a low credit score, you're more likely to be offered higher interest rates than if you had a better score. A higher interest rate means you'll pay more over time to borrow money.
When you're up for a new job, especially a role handling finances or confidential information, your potential employer might check your score or your credit report. They may look for late payments and derogatory marks that suggest you've had trouble taking care of your money. If your score is low, they might deny you employment.6
Approval for apartment or home rentals
It's not unusual for landlords to have your credit checked as part of the application process for a home or apartment. If your score is good, you might be chosen over another applicant who has a fair or poor credit score.7
Lower insurance premiums
Insurance companies are also interested in how well you manage your personal finances. Higher credit scores, they say, are associated with a lower rate of filed claims—and lower credit scores often mean more filed claims. The higher your credit score, the better chance for lower premiums on your insurance, especially auto and homeowners.8
What happens if you have "bad credit"?
As you can see, bad credit can make it more difficult to get a loan, find a place to live, and get a job. There are other results of bad credit, such as needing to pay a deposit for your utilities or cell phone.9 Given that these are basic necessities for many Americans, some consumers might decide that pursuing a good credit score is worth the effort.
Luckily, there are steps you can take to improve your credit score. The most important action is to pay all your bills on time, from loan payments to credit card payments. Also, keep your debt balance as low as you can on your credit cards and other loans. If you make an effort to take these two steps, after a year or so10 , you should see improvement — and with it, the benefits that come with a good credit score.
1 "Average Credit Score in America: 2018 Report. Value Penguin. https://www.valuepenguin.com/average-credit-score
2 "FICO Scores Versions," https://www.myfico.com/credit-education/credit-scores/fico-score-versions
3 Detweiler, Gerri (December 8, 2016). "Just How Bad Is My Bad Credit Score?" https://www.credit.com/credit-scores/what-is-a-bad-credit-score/
4 "What's in my FICO Scores," https://www.myfico.com/credit-education/whats-in-your-credit-score/, last accessed 8/15/18.
5 Irby, Latoya (March 18, 2018). "9 Benefits of Having a Good Credit Score." https://www.thebalance.com/having-good-credit-score-960528
6 Frankle, Neil. "How Your Credit Score Can Affect Your Job Search." Credit Pilgrim. https://creditpilgrim.com/credit-score-affect-job-search/
7 Irby, Latoya (March 18, 2018). "9 Benefits of Having a Good Credit Score." https://www.thebalance.com/having-good-credit-score-960528
8 National Association of Insurance Commissioners, "Credit-Based Insurance Scores: How an Insurance Company Can Use Your Credit to Determine Your Premium." https://www.naic.org/documents/consumer_alert_credit_based_insurance_scores.htm
9 Irby, Latoya (March 18, 2018). "9 Benefits of Having a Good Credit Score." https://www.thebalance.com/having-good-credit-score-960528
10 Kiernan, John S. (May 21, 2018). "How to Rebuild Credit in 7 Steps and How Long It Will Take." Wallet Hub. https://wallethub.com/edu/rebuild-credit/19613/
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