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En español | If you thought car insurance companies kept tabs only on your driving record to determine how much you'll pay for coverage, you'd be wrong. Insurers check your credit report — and poor credit drives up your premium.
If you're in the market for a home loan and your credit is spotty, you'll likely pay tens of thousands of dollars more in finance charges. According to FICO, the credit scoring company, an individual with a FICO score ranging from 760 to 850 would pay $1,426 a month for a $300,000 home loan based on a rate of 3.965 percent. A borrower with a lower score, from 620 to 639, would pay nearly $300 more each month — $1,714 for a 5.554 percent loan. Over a 30-year term, that lower credit rating is costing you an extra $103,444 in interest charges.
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Just as car insurance companies review your credit rating, so do companies that provide homeowners insurance. The National Association of Insurance Commissioners reports that 95 percent of auto insurers and 85 percent of home insurers use credit-based insurance scores in states where it's deemed an underwriting or risk classification factor. So if your credit nosedives, your homeowners insurance premium may head north.
Poor credit could cost you a job opportunity. A 2012 study from the Society for Human Resources Management found that nearly half of U.S. employers use credit checks on some or all of their job applicants. So if your credit history isn't so great, that could scare away potential employers and make it harder to find work. A growing number of states are passing laws to curb these credit screenings, although many states allow employers to use them as part of the hiring process.
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Enlisted personnel and certain federal workers need to maintain good credit in order to obtain various government clearances. Having bad credit could derail military members or government employees who are seeking promotions or career advancement opportunities.
No one likes to be rejected by potential suitors, whether it's due to a lack of chemistry, your appearance or some other reason — like your credit history. A staggering 75 percent of women, and 57 percent of men, say credit scores play into their dating decisions, according to a survey of 1,000 single adults from FreeCreditScore.com. Most respondents said money management skills were just as important as looks in deciding if someone was worth pursuing.
Financial stress can lead to headaches, sleepless nights, muscle tension and other maladies. Researchers have even discovered that fretting over financial matters negatively affects people's brains, partially because such mental distractions make you lose focus.
Federal student loans have interest rates that are set annually by the government. That's not the case with private loans. If you're considering going back to school to boost your marketability and have a poor credit rating, your student loan interest rates could soar into the double digits if you take on a private loan. Big student loan obligations could leave you with less to sock away for retirement.
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Applying for a credit card almost always requires a credit check. If your credit is somewhat blemished, a bank may offer you a credit card with an above-average interest rate. If your credit is worse than that, you may be offered a credit card with an interest rate of 20 percent or more. For people who've suffered through a bankruptcy, foreclosure or other credit catastrophe, a "secured" credit card may be your only option. Secured cards require you to put up a cash deposit as a way to assure a lender that you'll pay your bills.
It's one thing to have bad credit with traditional lenders like banks, credit unions and other financial institutions. But if your repayment track record is seriously tarnished, you may even have a bad reputation with family and friends. Perhaps you've borrowed money and not repaid it, or you took far longer than agreed to make good on a loan. If that describes you, your good name has been sullied. Such financial lapses will make it far more difficult to convince relatives to come to your rescue if a true financial emergency arises.
USING COUPONS: We all want to save a little money in this economy. Erin Gifford of Coupon Cravings shows you how to get the most out of those weekly clippings.
Jeff Yeager | Savings Expert
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