Whether you like to admit it or not, your credit score has a big impact on your career and finances. For something seemingly insignificant like a credit score number, it can have quite the ripple effect on your ability to build wealth.
If you haven’t paid much attention to your credit score until now, you’ll see why you should take a more proactive role. The importance of good credit can’t be underestimated — maintaining a healthy credit score allows you to focus on wealth-building and setting yourself up for success in the future.
How? Here are five ways your credit score can affect your overall wealth.
The importance of good credit
1. You can pay off debt faster
Whether you’re hoping to take out an auto loan for a new car or refinance credit card debt into a personal loan, the higher your credit score, the lower your interest rate will be. This means that you’ll be able to pay off your loans faster because you’ll be paying less interest and more of your payment will go towards the principal balance.
This is what I did recently when I refinanced some credit card debt into a personal loan. I worked towards increasing my credit score so I could apply for a personal loan with an interest rate of 10.89%, which was much lower than the average 15.45% credit card interest rate I was paying previously.
The higher your credit score rating, the less interest you’ll have to pay. You can get out of debt many months or even years faster than you previously thought.
2. You can afford better housing
When it comes to the importance of good credit, you could see a big payoff in your home. As a renter, your landlord may use your credit score as a determining factor of your personal characteristics.
Your credit score is an indicator of whether or not you pay rent on time and if you’ll be a good tenant. The higher your credit score, the more likely you’ll be able to qualify for your ideal apartment. You could also have additional leverage when it comes to negotiating rental terms based on your good history of credit.
If you’re in the market to purchase a home, a bank or mortgage company will be looking very closely at your finances. Your credit score is used to determine how big of a home loan you’ll be eligible for.
An excellent credit score means qualifying for a lower interest rate on your mortgage, which could mean significant savings over a 30-year term loan, and ultimately being able to afford a bigger and better home.
3. You can land a better-paying job
Depending on your chosen career field, your credit score could greatly affect your ability to get the job you want. Much like a landlord, some employers view your credit score as evidence of your ability to be responsible, show up to work on time, and be a contributing member of the team.
Up to 47 percent of employers run credit checks on their employees. A poor credit rating could mean less pay, and possibly having to settle for a different position or job altogether.
4. Your monthly bills will be lower
You may not realize it, but your creditworthiness plays a large part in your monthly household bills. For example, many car insurance companies view your credit history as a direct correlation to the likelihood of whether or not you’ll be in an accident, as well as your ability to make your insurance payments on time.
Utility companies also routinely check credit scores before turning on electricity, water, and gas services to a place of residence. Having a low credit rating could mean that you’re required to pay a deposit upfront before being able to use their services.
5. You can have a better retirement
Establishing a better credit score throughout your adult life will allow you to pay off debt and have more financial freedom. This ultimately enables you to start saving more money towards other goals.
Instead of forking over a lot of money towards interest payments, you’ll be able to prioritize financial goals beyond just paying debt, like having a good quality of life during retirement. What’s more, many people reduce costs by downsizing their cars or homes as they enter retirement. Having a strong savings fund will lessen the number of lifestyle changes you make when you stop working.
Don’t underestimate the importance of good credit. Proper credit management and smart spending habits will help lower your future cost of borrowing. You can reach financial freedom faster and ultimately have access to more funds in retirement. For these reasons, it’s important to be proactive about regularly checking your credit score and using it as a positive tool for wealth-building.
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