The impact of your credit score
Your credit score may impact:
- Your ability to get a credit card
- Your ability to purchase a home
- Whether a landlord will rent you an apartment
- The interest rate lenders are likely to offer you
- The amount of your insurance premiums
- Your ability to borrow money
Lenders will likely look at a credit score as an indication of how reliable you are in paying your debts. Credit scores typically range from 300-850, specifically those based on the standard FICO® Score. Occasionally you will see industry-specific credit scores which can range from 250-900. Regardless if you are looking at a base FICO® Score or an industry specific score, the same rule applies, higher is better. Generally the higher the score, the lower the risk for the lender, which may result in lower interest rates for you.
Credit scores are calculated based on information on your credit report so it’s important to make sure there are no errors on your credit report. There are five factors that determine your score:
- 35% of your score is based on your payment history
- 30% is based on current debts
- 15% is determined by credit history
- 10% is allotted to new credit applications
- 10% is about types of current credit
But lenders aren’t the only ones who may look at credit scores. Insurance companies may charge higher premiums to people with lower credit scores. Even for services that cannot be denied based on credit (like water or electricity), providers may require large security payments before starting your services if you have a low credit score.
Using credit can help you reach your goals, but remember credit has benefits and risks.