Financial experts and professionals often harp about the importance of maintaining a strong credit score, and for good reason. A credit score is essentially a summary of your financial credibility based on your spending and repayment habits. It’s used by landlords, employers, insurance companies, and loan providers to determine your reliability when it comes to paying your bills on time.
FICO credit scores can be separated into five categories:
Exceptional credit: 800+
Very good credit: 740 to 799
Good credit: 670 to 739
Fair credit 580 to 669
Poor Credit 579 and lower
Unfortunately, the pandemic has complicated things for many Americans across the board. According to a CNBC article, 51 million Americans increased their credit card debt because of the pandemic. Regardless, whether you find yourself in a precarious situation when it comes to your credit score or not, it’s important to work diligently to get your score up. A good way to do so is to use SavvyMoney. SavvyMoney gives you a comprehensive look at your credit situation, letting you in on the factors that are negatively and positively affecting your overall credit score so you can act accordingly. At RMLEFCU, you can access your credit score through SavvyMoney (with no impact on your credit!) on our mobile app.
Here are the most common facets of your life that your credit score can affect:
You Will Run into Trouble When Getting Approved for a Loan
Before granting you a new loan, banks and credit unions like to have a good idea of when/whether or not you will be able to pay them back. Most of the time, banks and credit unions utilize providers such as FICO or Vantage Score to obtain your credit score. These credit scoring models pull together all they can about your credit history- from loan balances to payment histories – to assess your creditworthiness.
With a poor credit score, you’ll run into trouble when it comes to borrowing, whether it’s a car loan, mortgage, or even a new credit card account.
Our Second Chance Loan
Even if you have a credit score that needs some work, Colorado is a state that’s run on cars – it’s important to have a vehicle so you can get to and from work, run errands, and take a quick trip to the mountains when you and your family want to get away from the noise of the big city. Our Second Chance Loan enables our members to lower their auto loan rate up to 2% APR* if timely and complete payments are made during the first six months. Even better, when you buy a new or used vehicle, you can enjoy up to 90 days of no payments. Not only that, but we are committed to offering very competitive rates on new and used vehicles with pre-approval available for extra bargaining power at the dealership.
Fewer Renting Options
Home buyers aren’t the only ones who need to worry about getting a loan with a low credit score. Renters can also run into trouble when they’re looking for a new home if they have a less than ideal credit history. Landlords often look at your credit score to size up your ability to pay them on time and in full before approving rental applications. While there are ways around spotty credit – from using a guarantor to offering to pay a higher security deposit – it’s much easier on both renters and their landlords if there’s a higher credit score to work with.
Higher Interest Rates
Even if you do get approved for a loan with a poor credit score, you’ll face some pretty high interest rates. Since lenders see people with a low credit score as higher risk, they’ll oftentimes jack up your interest rates as a way of compromising for giving you the loan in the first place. Remember: the higher your interest rate on your loan, the more you’ll be paying towards interest rather than the principle over the long run of your loan.
The Bottom Line
Getting your credit score as high as possible is crucial to maintaining your financial wellness. If you need help coming up with a plan that will get you closer to your financial goals, drop by any RMLEFCU branch. Our certified financial counselors can help you construct a sustainable financial plan that will help you achieve your short-term and long-term financial goals and, in turn, boost your credit score.
*Annual Percentage Rate. With approved credit. Some restrictions may apply. Rate subject to change.