You may have heard of the word credit score, but you may not realise how much it impacts your life. Every financial decision you make, every credit card you have or want, every loan you need – ties back to your credit score.
A credit score is a rating given to you by a credit rating agency that reflects your credit health. If you’ve been consistently paying off your debt – be it a car loan, student loan or credit cards – then you’re good because you probably have a high credit score.
However, if you consistently miss your monthly payments, then your score probably won’t look very good; which is what you want to avoid.
A good credit score means banks will be more likely to want to do business with you, and are more likely to approve your loan and credit card applications.
However, if that is not the case for you, here are some of the things that may happen with a bad credit score:
1. You may be declined for a rewarding credit card.
Credit cards can help you save money – if used correctly – and earn you plenty of rewards. For example, certain credit cards entitle you to buy-1-free-1 movie ticket deals or give you cashback when you’re filling up petrol or taking a Grab ride. There are also other cards that offer deals on groceries and dining.
Credit cards can also come in handy when you’re travelling overseas, or during emergencies.
However, a bad credit score can discourage banks from approving your credit card application. After all, there’s no telling if you’ll actually be able to pay off your bill every month if you have a history of missed payments.
2. You may not be able to buy a car or a house.
Banks are like your friends. They might lend you money, but your reputation as a cheapskate will spread if you “forget” to pay them back. In the case of banks, it just means that you won’t be able to get a car or housing loan.
Even if your loan does get approved, your low credit score may result in a higher interest rate to cover their risk of lending you money. Higher interest rates mean higher monthly installments, which could have been avoided if you keep a good credit score.
3. It may affect potential job opportunities.
You probably never thought about your credit score when applying for a job – because who does anyway? You should, because potential employers may check on your financial health if you’re applying for a high-level position or a position involves finances. If it is less than satisfactory, they may decide to offer the job to someone else.
Employers want someone who is consistent and reliable, and your poor credit score may portray you to be otherwise. Don’t take the risk.
On the other hand, if you have a good credit score, you don’t have to worry about being skipped for a good job opportunity.
4. It might affect your relationships.
Imagine you’re about to get married and are extremely excited to start your brand new life. You and your partner decide to buy a home together. You apply for a home loan, only for it to get rejected – because one of you has a low credit score and did not realise it.
That might take a toll on your relationship because amid all the wedding stress, you now have to figure out how to improve your credit score – a process that will take months. So you put off buying your dream home or even applying for a personal loan to consolidate your debt.
Couples should be upfront on their credit health and work together to improve their credit score to avoid unpleasant surprises in the future.
Banks and other financial institutions will always use your credit health as a reference point before doing business with you, and your credit score is a good indicator of how the banks view you as a potential customer. To avoid the above four unfortunate scenarios, make sure you always maintain a good credit score by being consistent with your monthly debt repayments.
