How Your Credit Score Impacts Your Financial Future in 2023
What’s the average credit score needed for a mortgage? To get a loan, you usually need at least a 620 credit score. According to Nerdwallet, it’s around 665 for used cars and as high as 732 for a brand new car. If your jaw just dropped to the down and your palms started sweating then you’re in the right place!
Today, we’re here to tell you just how much your credit score impacts your financial future. And, as you can see from the stats regarding the score needed to get a mortgage loan or auto loan, you need a pretty good score just to access basic financial products like a car or house. However, those aren’t the only things that can be affected when your credit score is less than great.
Let’s explore some of the ways that your credit score impacts your financial future, or at the very least, your ability to access normal, everyday things that are required to live in today’s modern world.
6 Ways Your Credit Score Impacts Your Financial Future
1. Qualification for A Loan
As mentioned above, your credit score impacts your qualification for a loan. To qualify for a simple personal loan from a well-known bank, you’ll need at the very least a 610 credit score in most cases. This means that if you don’t have credit or have had a tough financial past and have bad credit, you simply can’t access the financial help you need. Furthermore, while having a 610 credit score might qualify you for a personal loan, it doesn’t mean that you’ll get the best interest rates on the loan. That leads us to our next point…
2. Lower Mortgage Interest Rates
If you check out our article on the benefits of having a good credit score, you’ll be able to see just how much having a good credit score impacts your mortgage interest rates.
For example, let’s say you’re looking for a 30-year fixed-rate mortgage loan and you need $200,000. If you have a good credit score, you could get a 3.3% interest rate on that loan. However, if you have poor credit, you could get a 4.8% interest rate on the loan. That amounts to a difference in monthly payments of $184, but over the lifetime of the loan, you’d end up saving over $60,000.
So, your credit score definitely impacts your financial future in terms of tens of thousands of dollars of savings, at least when it comes to interest rates on larger loans.
3. Refinancing Loans
Sometimes you need to refinance a mortgage. For example, when interest rates dipped in the spring of 2020 due to the pandemic, it would have been a great time to refinance your mortgage loan in order to get a lower interest rate.
However, the same issue applies as above. If you want to refinance your loan to save money, you need a good credit score. Typically, to refinance something like a mortgage loan, you need at least a 620 credit score. However, the higher your score, the lower your interest rates will be. So, it pays even more to have a score much higher than 620.
4. Purchasing a Car
If you’ll remember from the very beginning of this article, you need a credit score of 665 for used cars and as high as 732 for a brand-new car. This means that your credit score impacts your financial future on a very personal basis. After all, in most US cities, it’s absolutely necessary to have a car to get around. Also, same as mortgage loans, if you’re getting an auto loan, a better credit score will qualify you for better interest rates, which will save you large amounts of money.
5. Renting an Apartment
Every landlord is different, but your credit score can also affect your ability to get approved to lease an apartment as well. While most landlords do look for a credit score of at least 600, you can get a co-signer (and might actually be required to get one) if you have a lower credit score. Most of the time if you have a low credit score, you would need to pay more deposit as well.
What’s different about lease applications, though, is that landlords will actually look at your entire credit report for other things than simply your score. Namely, they’ll look at your payment history for the past 24 months, your rental history, and any public records that are open in your name that indicate you might be a rental risk.
6. Employment Opportunities
You mean your employer can check your credit score? Yep! Well, let’s be clear: they can order a full credit report as part of a background check. This is because a) they want to ensure they’re working to prevent theft or embezzlement, and b) they want to look at your employment history, which is often listed on your full credit report. Didn’t think that bankruptcy or those 18 months of missed credit card payments would keep you from getting your dream job? You might want to consider it again.
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