9 ways your credit score impacts your life

Why does your credit score matter? Here’s how your credit score impacts you and how it could save you a lot of money.

What is a credit score anyway?

A credit score is a number used by banks (and other financial institutions) to measure how financially responsible you are and how likely you are to make your payments.

Your credit score is based on how often you pay bills, when you pay them, and how long it takes you to pay them.

A credit score might range anywhere between 300 and 900 - the higher the number, the better of a candidate you are in the eyes of a loaner.

According to Equifax, “credit scores from 660 to 724 are generally considered good; 725 to 759 are often considered very good; and 760 and up are considered excellent.”

So, why should you care?

A high credit score helps you borrow money at a lower rate of interest.

At some point, you will likely need a loan to help with a major purchase. Chances are, if you want to buy a house, you will need a mortgage, if you want to buy a car you may take out a loan. The higher your credit score, the more likely you are to get approved for low-interest loans.

That’s not all, though. There are several ways your credit score can impact you.

  • Lower interest rates on loans. A better credit will likely result in lower interest rates on loans like a mortgage or a line of credit. You could be saving thousands of dollars over the life of a loan. For example, a $200,000 mortgage paid over 30 years at a rate of 4.29 per cent results in total interest paid $155,884. But if you have a lower credit score and only qualify for 5.5 per cent, you will pay $208,808 of interest. That’s almost $53,000 saved because of good credit.
  • Access to larger loans. A good credit score will give you access to larger loans.
  • Renting an apartment. Most landlords will look at your credit score when reviewing tenant applications and will usually favour applicants with better scores.
  • Lower car financing or leasing payments. A higher score can help you secure lower payments by reducing your interest rates.
  • Access to better credit cards. Many banks offer bigger credit limits and lower interest rates to applicants with good credit scores.
  • Better insurance rates. Whether it be car, rental or housing insurance, your quote may vary based on how good or bad your score is. You could pay hundreds of dollars less in insurance premiums over your lifetime simply by maintaining your credit score.
  • Job application brownie points. Some employers will look at your credit to gauge how responsible you are when reviewing your application.
  • Better internet, phone or cable terms. Many providers check your credit before they set up your service. In some cases, a low credit score could mean being denied an account by the provider. If poor credit doesn’t get you turned down, you might have to pay a security deposit to secure the service(s).

It can be challenging to determine exactly how much money is saved because of good credit, but the correlation between credit-worthiness and savings is irrefutable.

KEEP THE CONVERSATION GOING

How many of these ways to save with a good credit score would help to you?  Post a comment below.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Cindy Vander Schueren, CPA

Cindy is a CPA and Financial Literacy volunteer. She is also the founder of the Making Coins Count personal finance blog, which strives to teach the art of money management – how to earn it, save it, and invest it.