Many or all of the companies featured provide compensation to LendEDU. These commissions are how we maintain our free service for consumers. Compensation, along with hours of in-depth editorial research, determines where & how companies appear on our site.
If you think that your credit score is just a number entered into a system by someone who either likes you or not, you are incorrect. Your credit score is an important part of you and if you let it fall wayside, you will be in trouble when it comes time to put it to good use.
Credit scores are not just a set number and they fluctuate on a daily basis. Different factors affect them, which means the score is never going to stay the same. For instance, a handful of hard inquiries on your credit report can drop your score a couple of points in a single day!
So, you may be wondering just why your credit score is so important, right?
Credit Approval or Not
One of the reasons your credit score is important is because it will determine whether you are approved for credit. In many situations, your score will be used to determine if you will receive something you want or not. For instance, if you are shopping for car insurance and you have a weak score, you may end up paying a higher yearly premium than someone who has a good credit score. In addition, you may end up not even being approved to go through the insurance company you want.
In addition, if you need a personal loan or credit card, you will not receive one with a poor score. Relying on a pawnshop or payday loan can actually help you fall farther into debt.
There are ways to improve your credit, and, of course, you could just pay cash for everything, nevertheless, you may eventually need the credit lifeline and it won’t be there.
Apartments and Auto Loans
Your credit is relied upon when you are shopping for a new car, and, yes, for an apartment as well. Property owners and apartment management teams will run your credit and evaluate your report before you move into their complex. If you do not meet the minimum standards they have set forth, you will not be able to rent from them.
In addition, when purchasing a new or used car, the dealership and financing companies peek at your credit score. Without a good one, you will be driving away in the same car you came with.
Home Loans and Mortgage
Your credit score will negatively affect you when it comes time to purchase a home or even close on a home loan. For instance, if you have a low credit score, but it meets the minimum to purchase a home, you will pay a higher APR rate than someone who has better credit. This can be a difference of $100,000 of more in some cases.
If you are trying to close on a home loan, fluctuations in your credit score can place the entire process on hold. This means that if you go out and apply for three credit cards, your loan may not close due to the change in score.
What Factors Affect Your Credit Score?
There are a number of factors that play into your credit score and each one can have a negative impact. The bad thing about your credit score is that you can miss one or two payments and your score will take a nosedive quickly, but rebuilding your credit can take years.
Some of the factors that lower your score include:
- Any accounts in use, which will affect your score daily
- Payment history
- Length of your credit history
- Public records
- Inquiries, which affect your score daily as well
- New accounts
Changing Your Credit Score
Most negative information will remain on your credit report for up to seven years. If you want to improve your credit score, you can take steps to do so such as paying your bill on time, avoiding credit inquiries, and avoiding credit applications.
It is important to know that you cannot go into your credit report and remove negative information. Unfortunately, even if you begin paying on an old account that you let go to the dumps, the negative information will not go away and it can still be seen by financial lenders and corporations.
As a final note, make sure that you are always checking your credit report on an annual basis and report any wrong information quickly to help preserve your credit score.
Author: Jeff Gitlen