Having good credit is one of the most important building blocks to financial independence.

As you probably already know, your credit score is the single biggest factor in determining your ability to borrow money.

However, it’s effects go far deeper than your finances. Here are a few of the big effects:

Your Borrowing Ability

Perhaps the most obvious one, your credit score affects the interest rates you pay on credit cards and also affects the interest rate you will pay on a mortgage loan.

The higher your credit score, the better risk you appear to lenders which will lead to lower interest rates on all sorts of loan products.

Your Job

In a disturbing new trend, your credit score can even affect how a potential employer views your value to the company. The higher your credit score, the better you look to a new employer.

The reasoning is this: if you’ve got a low credit score, you will be seen as generally less responsible and less trustworthy.

However, not all employers will take a look at your credit score, but it’s becoming more and more common.

Your Insurance

Almost every insurance company these days will check your credit score when you apply for coverage. Whether you are applying to for homeowner’s insurance, life, or car insurance, checking out your credit score is fair game.

This is especially true for car insurance companies. They feel (rightly or wrongly) that your credit score tells them something about you, like your temperament and your ability to handle responsibility.

Keeping your credit in great shape will ensure you get the best insurance rates.

Your Life

You probably don’t have to be reminded, but if you have a low credit score you will also be at risk of being:

• denied home or car loans
• denied a job opportunity
• paying high rates of interest on loans
• having to pre-pay or pay a deposit for goods and services

What is the price you are already paying for Bad credit? A quick glance at the figures below shows that a good credit rating can save you hundreds in interest charges.
Example 1: Automobile Financing If you are making payments on a car, you are probably paying between $5,000 and $9,000 more in interest just for having bad credit. This added interest shows up every month in a higher payment. Take a look…
Credit Status Rate Payment Over 5 years Monthly Cost of Bad Credit Perfect 10% $424.94 $0.00 $0.00 Mildly damaged 14% $465.37 $4,722.54 $76.17 Damaged 20% $529.88 $8,593.30 $138.60
window.google_render_ad();
Example 2: Home Mortgage Bad credit in auto financing can really hurt, but it is nothing compared to the cost of bad credit when a home is involved. A typical home can cost between $50,000 and $130,000 more in interest if you are buying the home with bad credit, as indicated below.
Credit Status Rate Payment Over 30 years Monthly Cost of Bad Credit Perfect 7% $655.30 $0.00 $0.00 Mildly damaged 9% $804.62 $50,155.24 $139.31 Damaged 12% $1,028.61 $130,791.63 $363.30
Example 3: Credit Cards Most of the time you cannot even get an unsecured credit card with bad credit. If you do, you are generally expected to pay a high monthly payment or initial fee. Furthermore, the limits are typically low and the card issuer often asks for a cash deposit.

If your score is hurting…

I’ve learned that the steps to regaining a good score and your financial freedom after going through a financial difficulty are the following:

1. Get your Credit Report
2. Dispute negative and erroneous entries
3. Make lifestyle changes to improve your credit score

Almost every financial decision you make in your life will most likely in some way revolve around your credit score, so if yours is low, now is the time to get it fixed.