Your credit score could impact several aspects of your life — and not necessarily in a good way.
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- A higher credit score could make it possible to borrow money more affordably.
- There are steps you can take to raise your credit score if you’re not happy with it now.
You may not pay close attention to your credit score until you actually need to borrow money for one reason or another. But it’s important to know what that number looks like, because the higher your score, the more options you’ll buy yourself.
On the flipside, poor credit could prevent you from meeting certain goals. Here are two major goals that could be off the table until your score improves.
1. Buying a home
Most people can’t pay for a home outright — especially not in today’s market, where home prices are so high. That’s why home buyers commonly take out mortgages. But if your credit score is poor, you may not qualify for a home loan — or a loan at a competitive interest rate.
It takes a minimum credit score of 620 to qualify for a conventional mortgage. However, some lenders impose higher standards, which they have the option to do.
Now there are certain loan programs that are specifically designed for borrowers with poor credit, like FHA loans. But those come with certain borrowing costs you may not want to take on.
Even if you’re able to qualify for a mortgage with poor credit, you may end up unhappy with the interest rate you lock in on that loan. Imagine you’re borrowing $100,000 that you’ll be paying off over 30 years. With poor credit, you might get an interest rate of 5% on that mortgage, leaving you with a monthly principal and interest payment of $537. But with a better credit score, you might snag an interest rate of 4%, which would drop those payments to $477.
2. Starting a business
Some people dream of venturing out on their own and pursuing specific business ideas. If starting a small business is a goal of yours, poor credit could, unfortunately, get in your way.
It commonly takes money to get a small business off the ground — especially if you need funds to invest in equipment, supplies, or a physical place of work. But if your credit score isn’t great, you may not qualify for a small business loan — or an affordable one.
How to boost your credit score
The last thing you want is for poor credit to stop you from meeting major life objectives. If your credit score could use work, there are steps you can take to raise it. These include:
- Paying all bills on time
- Eliminating some existing credit card debt to lower your credit utilization
- Getting an increase in your credit limit but not using it
- Correcting errors on your credit report
Improving your credit is a process that could take time. But if you make that effort, you might benefit in more ways than one, since some of the steps above might also help your overall financial picture improve. Paying off credit card debt, for example, could save you money on interest charges and give you more flexibility with your monthly bills. There’s a lot to be gained by trying to raise your credit score if you feel it needs work.
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