When you think about financial management, a lot of attention usually sits around your credit score. However, some people don't understand the need for or the fragile state of credit scores. Most believe a credit score is beneficial only when you want to buy a house or a car, but there's actually a lot more to it than that.
Here are a few things to help you understand the importance of your credit score:
Benefits on credit cards
You've probably seen a million commercials for credit cards that offer rewards, annual fee waivers, cash back and 0 percent balance transfers on TV, but with a poor credit score, you're likely to receive none of these perks, The Fiscal Times reported.
Credit cards take extreme levels of responsibility because you're essentially borrowing money against what you currently possess. This is perfectly fine and can truly help if your car needs an emergency repair or another major expense occurs. However, to get the best rewards and benefits from a credit card, you need to have a good credit score.
Even if you already have a card with plenty of perks, if you let your credit score dwindle, a creditor could change your interest rate or add extra fees.
"They're looking for any adverse changes to your credit report," John Ulzheimer, president of consumer education at CreditSesame.com, a personal finance website, told the source. "[If there's a big change], they many no longer want to do business with you under the current terms."
Easier to fall, harder to climb
With credit scores, your financial management is put at risk when you let your credit score drop. The worst part about credit scores is that they're relatively easy to harm. According to U.S. News and World Report, one mess up could take off major points from your credit score. However, it takes even more time to build those lost numbers back up.
For example, if your credit score drops by 100 points, it could take years of positive payments and on-time bills to get back to where you were. A credit score will only improve once it sees you are responsible enough to pay things on time again. Essentially, you have to earn back truck that you might have lost.
Employers looking more at credit scores for hiring
Another major issue with credit scores is that many employers are using them to determine who they hire, CNBC reported. A severely lacking credit score could make a company turn you away for a job. Employers simply want to know they are hiring responsible people.
Bad credit could have you paying more
While credit does in fact matter for your first home purchase or car, it can severely affect how much you pay for these items as well, U.S. News and World report stated. Interest rates for home mortgages could increase, and car dealerships could ask for more money down if you have bad credit.
In the end, you'll likely spend more for major items than a person with good credit would.
For more information on effective wealth management strategies, contact Landmark Bank.
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