Most people know the importance of having good credit when it comes time to get a home or auto loan, but those are not the only ways that credit can affect your life. Here are some other unexpected ways that your credit score and credit history can affect your life.
Higher Insurance Rates
Your credit score is an indicator of the kinds of financial habits that you practice, but your financial habits also have an impact on almost every aspect of your life. People who are responsible with their money also tend to be more responsible in other areas of their lives and people who are irresponsible with money are also irresponsible with credit.
Insurance is only meant to cover accidents that are reasonably unavoidable, not those that are simply the results of poor decision making. If you don’t make responsible financial choices and manage money responsibly, there is a good chance you behave irresponsibly in other areas of your life, which means insurance companies will charge you more to insure you. Insurance companies have found a direct correlation between bad credit and the likelihood of filing a claim, so if you don’t want to pay an arm and a leg for insurance, you might want to manage your credit well.
Higher Rental Costs
Your credit report doesn’t just report on loans and credit cards. If you have a history of paying your rent late, that may also show up on your credit report, as do any evictions. Property is an investment, so people that rent their property to you want to ensure they are renting to responsible tenants that will take good care of their investment. People who do not even manage their own money and finances well are less likely to manage someone else’s property well. In some cases, having bad credit may prevent you from being able to rent a home or apartment at all, but in other cases, it may simply result in you having to pay a large deposit or even a higher rental amount.
Higher Prices
If a person with good credit takes out a $25,000 loan to buy a car at 4% interest, then over the course of 60-months they would end up paying around $2,600 in interest or $27,600 for the car in total. If a person with poor credit buys the same car, they may be charged an interest rate of up to 18%. Over the course of 60-months, that means they would pay nearly $13,000 in interest for the exact same car or a total of $38,000. Regardless of what you pay for the car, the car is still worth the exact same amount. If you want to stop paying more for the exact same things as someone with good credit, you may want to get your credit in order.
More Debt
When you have to pay more for things than a person with good credit, it eats up more of your income. For instance, the person with good credit who was able to get a low-interest rate loan will only have to pay a car payment of about $460 per month. The person that got a loan at 18% interest, however, will have to spend about $635 per month for the same car. That leaves them with $175 less income each month than the person with better credit. When you combine that with higher insurance rates and possibly even higher rent, that means the person with poor credit needs to make significantly more money each month just to afford the same things as the person with good credit. If they can’t, they just end up going deeper and deeper into debt to try and afford the same things.
Debt and credit are two sides of the same coin. People with good credit are those that have proven they know how to manage debt responsibly. People with significant debt are least likely to have good credit. Getting and maintaining good credit almost always starts with paying down debt. The good news is, however, that there are a number of ways to get started on the path to building good credit. Debt consolidation is one way to get started. Trout Associates can help you combine a number of different debts into one lump sum which also allows you to make a single monthly payment. Not only can this make your monthly payment more affordable, but it can also help you avoid late payment fees or missed payments. Trout Associates are experienced debt consolidation experts that can help you get your debt under control and your credit back on track.
