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How Credit Scores Impact Your Life

6 times your credit score matters most

Nov. 23, 2016

By BEVERLY BIRD (Tribune News Service)

Maintaining your credit score is like trying to hold a snake. It twists. It changes direction seemingly on whim. And it's tempting to simply throw up your hands and let the snake go. But that can be a very bad idea.

Your credit score matters -- a lot. It's a numerical indicator of how likely you are to repay loans in a responsible and timely manner.

So if your score is low, lenders will likely be less willing to extend you credit. And that can make your life unpleasant and outright difficult in some critical circumstances.

You Need a New Car
You've been driving a used car for years with no problem. But now, you've got a new job in a different city, so you're going to be piling some miles on that old jalopy. If you have to buy a new car -- or even a new used one -- your credit score will be pivotal to the transaction.

Yes, you can get approved for an auto loan with less-than-perfect credit because a lot of other factors come into play.

"Lenders also look at what sort of payments you missed or were late on -- what happened to lower your score?" said Justin Bird of Bennett Chevrolet in New Jersey. "If you have a 600 score, and you've been late on everything except your car loan, some banks won't penalize you too much."

But if your credit score isn't good, you'll probably end up paying a significantly higher interest rate.

You Want to Buy a Home
If you have a poor credit score, you're probably out of luck when it comes to qualifying for a mortgage.

Of course, your ability to take out a loan for a home depends on a variety of factors: your debt-to-income ratio, loan-to-value ratio, missed payments and more.

But err on the side of caution, and take steps to boost your credit score so that it's in the 720-740 range. Otherwise, you might face higher interest rates.

If you need a mortgage now and you don't have time to raise your credit score, you might have to settle with higher rates. But remember, you can always refinance your mortgage when your credit score improves. You're not necessarily stuck with the original loan you took out when your credit score was less than perfect.

You Just Want to Rent an Apartment
Your credit score can also matter if you just want to rent an apartment. It's not quite as critical as it is with a mortgage, but a bad credit score can make it difficult for you to be approved for a lease.

Put yourself in your potential landlord's shoes. Tenant A (you) and Tenant B really want to rent the same unit. The landlord is on the fence, so he asks for permission to check your respective scores. Yours is 575, and Tenant B has a pretty good credit score of 675. This tells the landlord that he's better off with Tenant B if he wants the rent paid on time.

But as with a car loan, other issues can come into play -- your score alone might not get you rejected.

"There are many different factors that go into accepting a tenant," explained Maria Sacco Handle with Berkshire Hathaway Home Services in New Jersey. "Job stability, letters of reference and debt-to-income ratios are often considered."

You Need Auto Insurance
Your credit history also contributes to how much you'll pay in auto insurance premiums.

Insurance companies devise their own unique scoring models based on the information included in your credit report. This information is used to arrive at a proprietary score that's intended to indicate how likely you are to ever make an auto insurance claim. The theory is that if your credit history is spotty, you're more likely to do just that -- perhaps even if have a spotless driving record. And if you're likely to make a claim, you'll be charged more in premiums.

This practice started sometime in the 1990s and was pretty widespread by 2006, according to a report by Consumer Reports. Only three states prohibit this practice by insurers: Massachusetts, California and Hawaii.

You Want to Start Your Own Business
Starting your own business is a part of the American dream. And your credit score matters here, too.

Your business will have its own credit score after you get it off the ground, something called a PayDex score that's calculated by Dunn & Bradstreet. According to the U.S. Small Business Administration, this score reflects "how a business paid its bills over the past year based on trade experiences reported to D&&B by various vendors."

But when you first start out, you might not have a PayDex score. And, what happens if you're a small business owner and choose to rely on your personal credit, a practice many experts don't recommend? If that's the case, your personal credit score will pay a large role. Take steps to build your business credit, and separate your personal finances from your business finances.

Credit reporting company Experian also states that your personal credit and business credit can be pretty closely linked if you're a sole proprietor. So, it's important to take steps to protect both credit scores.

You're Looking for a Job (sort of)
You might have heard that your poor credit score can also tank your chances for a great job opportunity. But this isn't exactly true. Your credit history can make a difference, however.

Credit scores and credit reports aren't the same thing. Your score is derived and calculated from the information contained in your credit report. Your creditors report your loan activity to the credit agencies, the information is added to your report, and a numerical value is assigned accordingly, resulting in your score.

So, let's say you've been offered this great job, and the company wants to check your credit. You agree. What does the company see? It's provided with some of the same information a potential lender might see. However, employment credit reports might not contain account numbers or references to your spouse. Based on your credit report and financial history, you could possibly lose out on the job opportunity.

You can be prepared for all these eventualities by knowing your credit score.

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Distributed by Tribune News Service.

This story was distributed by TNS - Tribune News Service
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