Most people understand the importance of good credit when applying for loans or credit cards. The better your credit, the more likely you are to be approved and earn better terms. But your credit matters, even if you don’t need to borrow money.
Having poor credit can hold consumers back from getting an apartment, a job, even a cellphone contract, and may increase the cost of car insurance and utility deposits. That’s bad enough, but according to a new NerdWallet survey, many Americans don’t realize the negative impact that bad credit can have on their everyday lives.
[See: 12 Simple Ways to Raise Your Credit Score.]
Landlords want to see good payment history. Payment history is the most important factor in a credit score, and on-time payments are very important to landlords. That’s why a potential landlord may check your credit, in addition to references from previous landlords, to make sure you’re in the habit of paying bills on time. But almost one-quarter of Americans don’t know that a person’s ability to rent an apartment can be negatively affected by bad credit.
Even with poor credit, you might still be able to rent an apartment with a co-signer or a large security deposit. But you might not be able to get your first choice, especially if other potential applicants have a stronger credit history. Improving your credit will help you compete in tough rental markets.
Some employers will check your credit. Potential employers won’t check your credit score, but they might check a modified version of your credit report. This is especially common for positions in government or involving finance. Employers check job applicants’ credit for clues that they might be irresponsible or in desperate need of money, which could make them a theft risk. Depending on the state you live in, pre-employment credit checks may be limited by law or even illegal.
A credit report doesn’t show the whole picture of your money management skills, and even the most responsible consumers can end up with blemishes on their credit reports. That said, since improving your credit may help you obtain a job in the future, it’s important to prioritize it.
[See: What to Do If You’ve Fallen (Way) Behind on Your Credit Card Payments.]
The latest cellphone is tougher to get. About half of Americans don’t know that a person’s options for cellphone service can be limited by bad credit. While it’s possible to get a cellphone with poor credit by paying a security deposit or joining a family plan, it may not be possible to get a regular plan by yourself if your credit is bad. Prepaid phones are a good option. But if you want a new iPhone or Android smartphone, you’ll probably have to pay for the phone in full and upfront since you’ll be locked out of the discounts and installment plans available to those with good credit.
Credit correlates with risk — and, therefore, car insurance rates. More than 2 in 5 Americans don’t know that the price of car insurance can be negatively affected by bad credit. There are credit-scoring models specifically designed to help auto insurers determine whether you’re risky. Consumers with bad credit are statistically more likely to make insurance claims, so insurers want to see the state of their finances to determine risk level and rates.
In some states, credit-based insurance scores are illegal. Rates there are based on your driving record and other personal information. But in states where these scores are legal, it’s likely your insurance company will check them, so improving your credit is crucial.
Bad credit may mean deposits on utilities. Consumers with good credit are less likely to have to pay a deposit to set up utility service. Like landlords, utility companies want to know that you’ll pay your bills on time. If your credit history shows otherwise, you may have to put up a security deposit. More than half of Americans don’t know that the cost of utility deposits can be negatively affected by bad credit.
[See: 12 Habits to Help You Take Control of Your Credit.]
How to improve your credit. The credit information that gets checked may vary based on who’s checking — an employer or car insurer versus a lender — but the most important elements are your payment history and debt load. So focus on paying every bill on time, every time, and paying down debt. For both of these, you need to get organized and free up cash in your budget.
Ensure that bills get paid on time by setting up automatic payments. To free up cash in your budget, you’ll need to make more money, spend less, or both, and divert the extra funds toward your bills.
Even if you never plan to apply for a loan, the negative effects that bad credit can have on your everyday life show the importance of healthy credit. Start building or improving your credit now, so it doesn’t get in the way of living your life later.
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How Bad Credit Can Sabotage Your Everyday Life originally appeared on usnews.com
