How’s your credit rating?
Balances on mortgage, auto, and student loans in the U.S. all rose in the first quarter, according to a report from the Federal Reserve Bank of New York this week. Credit card balances were an exception, but card delinquencies are trending up, the Fed noted. That's worrisome. Credit scores have a big impact on consumers' daily lives, often in ways they don't realize.
So we talked with someone who knows all about the different ways credit scores affect us: Liz Weston, author of Your Credit Score, a book about “how to improve the 3-digit number that shapes your financial future,” and a columnist at NerdWallet. Weston spoke about the ways bad credit jacks up prices for basic consumer needs, offered advice about those store credit cards that tempt consumers with zero percent financing on purchases, and debunked a few credit card myths while she was at it.
Here are excerpts of our conversation, edited for clarity and length.
How can bad credit affect our daily lives?
You don’t typically know what you’re missing when you don’t have good credit. T-Mobile said a couple of years ago that half of its customers weren't getting its best deals on phones because of their credit. In a NerdWallet survey, the majority of people knew that landlords use credit scores in making decisions about who to rent to, but many people still didn't know, and they were surprised at how bad credit can increase the size of utility deposits.People also weren't aware of how their credit score can affect auto insurance premiums. A 2105 Consumer Reports investigation found that sometimes your credit score is more important than your driving record with auto insurers. There’s a connection between a person’s credit score and how much they wind up costing an insurer. Nobody knows why.Bad credit is one of those spiraling things. Because you lose your job, your credit takes a hit, and all of a sudden, everything gets more expensive, which makes it harder to get by. No wonder people hate credit scores. When they’re bad, they just make things worse. When they’re good, though, they dramatically improve your life. You pay less for insurance, get better cell phone deals, better credit card deals.
So what's a good credit score?
Life starts getting more expensive once your scores slip below the 750 range. That Consumer Reports auto insurance study found that just having "good" scores, rather than excellent ones, could cost you hundreds of dollars in higher premiums each year.
But generally speaking, costs get higher and life gets harder once your scores slip below the 680 range. Below 620, most lenders would consider you "subprime," which makes credit very hard to get and expensive.
Most of us think of ourselves as having just one credit score. That's not true, though, right?