More than half of Americans (millennials included) can’t answer basic money questions.
During a survey, a whopping 50% of millennials couldn’t tell the correct range of possible FICO credit scores(the highest and lowest obtainable scores).
Some didn't even know it was a 3 digit number; others thought a credit score meant “The number assigned to you at birth which gives you priority from financial institutions."
Some said it’s "An official government system which is used to score the fairness of banks."
Others said, "It’s the number used to track your position on the waiting list for a credit card."
With answers like this in a survey, it's clear that folks know close to nothing about their finances.
Someone who thinks credit scores are assigned at birth is most likely unaware that a good credit score can help him secure better deals on rents and utilities.
What’s a credit score?
Your credit score is a 3 digit number that ranges from a low of 300 to a perfect credit score in the 850-900 range.
It tells a lender, an employer, a landlord, a utility company or just about any interested party, how creditworthy you are; in simpler terms, a good credit score means you pay your bills on time, you clear your credit card balances on time and hardly default on payments. A bad credit score means the exact opposite. There are many free websites that will let you check your credit report and FICO score for free including My Free Credit Score or Experian.com.
Here are a range of scores and their rating:
Excellent Credit: 750+
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: below 600
Come what may, you don’t want your credit score to go below 650 which is considered FAIR.
Ways your credit score can affect your life
1. Access better credit card rewards
Unlike other credit cards, rewards credit cards allow their cardholders to enjoy all kinds of incentives, from cash back to airline miles, to hotel points and everything in between. But as you might have guessed, the best reward credit card programs are only available to consumers with good or excellent credit scores. If your credit score needs improvement you may not qualify for any reward credit cards.
Also, these credit card rewards can help put more money in your account. If you regularly use your rewards credit card and clear your balances on time, then you might qualify for hundreds to thousands of dollars worth of rewards for free
Tip: If you’re looking to improve your credit, consider asking a close friend or family member to include you as a cosigner on their credit card. That way, you’ll share equal responsibility for the debt. Both the loan and a history of regular and timely payments will appear on your credit report.
Caveat: Any late or missed payments will also appear on your report, so be sure to choose someone who is financially responsible.
2. Gain an edge when applying for jobs
When you apply for jobs, potential employers have a right to ask for access to your credit history. This is especially true if the job requires handling money or accessing sensitive financial information.
If they find that you have a low credit score with a credit history riddled with bankruptcies, late payments or missing payments, they’ll conclude that you are financially reckless or irresponsible. They might also fear that your financial worries might make you more inclined to fraudulence, theft, and embezzlement. This will most likely get you kicked out in a pool of applicants.
However, if your credit score looks pretty good, employers are more likely to see you as someone who’s responsible and can be trusted with money and this increases your chances of landing the job.
Tip: If the job you’re applying for, is one that requires a credit check but your credit history has some major flaws; then I’d suggest you have an honest conversation with the hiring manager and let her know what happened in the past; also let her know what steps you’ve taken (or are currently taking) to better your credit score. This will make you come across as one that’s sincere and willing to make positive changes.
3. Predisposes you to mental illness
When you have a bad credit history and your finances are in a terrible shape you’re likely to constantly experience symptoms like fear, panic, anger, anxiety, and depression. All of which are lethally harmful to your mental health.
In fact, researchers have repeatedly found a clear link between mental and financial health. In other words, poor financial health begets poor mental health.
And thus the vicious cycle is born: poor financial health leads to poor mental health, which leads to increasingly poor financial health, and so on.
Researchers have also concluded that mental health issues like depression, anxiety, and certain forms of psychosis – are three times more likely to occur when an individual's finances are in bad shape.
There’s a certain feeling of mental calmness that comes with having a good credit score, you don’t have to constantly stress your brain on how to pay up tall stacks of bills; you don’t impulse-buy, you don’t overshoot your budget, you keep a close tab on your credit report and in general you are more in control. That’s what you should strive toward.
Tip: If your personal finance problems are causing you to experience symptoms such as Insomnia; suicidal thoughts; poor concentration; low self-esteem; appetite and/or weight changes; substance abuse (as a way to escape). Then it’s important that you speak with a qualified mental health professional.
4. Waived security deposits
Utilities such as electricity, water, cable, and phone are a loan of some sort in that you're allowed to use the service before paying the company.
So there’s the risk that you might enjoy the service and run away without ever paying your bills.
Hence they pull up your credit.
If they find your credit and payment history to be in bad shape, they won't trust you to pay your bills. And there’s a logic to that, let’s be frank if the history shows that you've been defaulting on other bills chances are that, you'll default on theirs too.
So to protect themselves they ask you to pay a deposit worth several months of services.
Keep in mind most charge service connection fees and other charges and you could be looking at hundreds of dollars just to get your lights on.
But with a good credit history, you come across as a financially responsible person and a reliable customer and for that, you receive a deposit waiver and get to have extra cash in your pocket
Tip: Utility companies aren’t perfect and sometimes they make mistakes reading your meter. Always compare the meter reading on your utility bill to what is actually on your meter. Just to be sure you're not getting overcharged.