Credit Scores You Need for the Things You Want

Do you know what your credit score is? Most of the time, we don’t really talk to each other about our credit scores. Some don’t know what it is and some don’t want to know. There are excuses people make for not knowing their score, but frankly there really isn’t a good reason for that.

We all know that good credit is important, but do you know what credit scores you need to get the things you want? Here's what you need to know.

We do know that good credit scores matter and that the real importance of having good credit and a good score doesn’t come up until the day you really need that really important “something” and that’s when you wonder if your score is good enough to get you what you want. That will be the day you find out and then it’s way too late to do much worrying about it!

The Rolling Stones had a memorable hit record back in 1969 with “You Can’t Always Get What You Want”, and even though they weren’t talking about your credit score, it certainly does apply.

At what point do credit scores come into play?

When you’re in the market for a new car, a house, or a obtaining a new credit card, you need to have knowledge and control of your credit score because you’re going to need that before getting that approval.

When it comes to buying anything you aren’t paying cash upfront for, even the most common of things—from auto insurance to renting a new apartment or buying or leasing a car—your credit score plays a big part in what you will pay and even if you can get what you want at all!

What’s the score these days?

Just for your info, in 2018 the national average FICO credit score, which follows a range of 300 to 850, was 673 for the average American. 673 is the average and if you are below that number, you might just have credit issues.

So you want to go car shopping?

When it comes to shopping for things like a new vehicle, your credit score will be one of the first things car dealers will verify before they sell you one. If you walk in with a high credit score, you’ll get a lower interest rate or a better lease deal. That’s a fact. And that means that your score will either save you money or cost you money on the purchase you make in the terms and interest payments.

According to Experian, one of the big three credit agencies, the average credit score for a new-car loan was 713 and 656 for a used-car loan. Your score doesn’t necessarily mean you will or won’t get any loan at all if you fall below those numbers, it just mean that you won’t qualify for the best rates and deals.

That can have a huge impact on your budget since you probably will be paying off your car loan or lease for several years. Once your deal is made, even if your credit score improves after that, you may not be able to refinance at a better rate without some cost, so it’s best to start with a great deal rather that hope and pray you can improve it later on.

About 20% of all car loans go to borrowers with credit scores 600 or below and those folks are paying lots of extra big bucks on their car loans and leases.

Renting an apartment or a buying a home?

If you’re in the market to rent an apartment or you want to buy or rent a house, landlords, leasing agents, or mortgage providers will have you fill out an application and then run a credit check on you. According to FICO, the minimum credit score needed as a renter is between 600-620, which rests in the “fair” credit range, and is a little bit below average.

“Fair” can be defined differently based on the location and even the type of apartment you’re looking for so if you’re looking to rent a bargain apartment in a not-so-great location, you may be able to get away with a low credit score. But if you’re eyeballing a luxury spot in Manhattan or San Francisco, your credit score will have to be in the high 700’s or as close to 850 as possible or, no way José.

But even before you fall head-over-heels in love with the home that you want to rent or buy, the best first step is to get your finances in order, starting with your credit score. Your credit score will be the number one piece of data that calculates what your approval chances are and what your mortgage interest rate will be.

When buying, a range of credit scores comes into play when it comes to your mortgage rate. To get the lowest rate, you’ll need a credit score range of 760-850. For every 50 or so points you decline in your score you will add on hundreds of dollars per year and thousands of dollars over the life of a mortgage.

Need a personal loan?

You may find yourself having some big project on your to-do list, like remodeling your home, paying off your wedding debt, or getting rid of any kind of debt you have taken on. If you do, you may consider getting a personal loan. As you’re planning what you need to have before jumping into accomplishing that task, one thing you’ll want to remember is that your credit score is right in the middle of the mix when it comes to applying for a personal loan.

For a personal loan, most lenders will require that you have a minimum credit score of usually between 580 and 600.

However, a score in that range may restrict your options and it’s best to know your score and ask what the minimum is before applying. This is because every time you apply for new credit, a hard inquiry is generated on your credit record and too many of those can have a negative impact on your credit score. That’s just another data point that can affect your overall credit score and worthiness.

What about car insurance?

Wondering how and why your credit score comes back into the conversation when it comes time to get a quote for auto insurance? Well, it’s a little different than anything else. When it comes to auto insurance, your credit score is combined, with other factors, to create a credit-based insurance score that then determines your insurance rates.

The main difference with this score is that it also includes a prediction of your likelihood of filing a claim as opposed to your odds of defaulting on a loan or line of credit. Insurers look for the correlation between financial mistakes you make and the driving mistakes you might make.

The challenging part with this score is that you’re not able to obtain it, like you can your credit score. If you’ve always paid auto insurance bills on time and have never filed a car insurance claim, you’ll probably have a really good insurance score.

But, if you are a first time insurance buyer, your score will not be good and thus your price will not be the very best rates. But the good news is that can change quickly once you demonstrate good driving and good credit responsibility. Adjustments occur quickly when you renew your insurance as you move into the driving future.

Do you need credit cards?

You may think you don’t need a credit card and it’s possible that if you are a super money manager you may not need to use cards. Some folks out there believe cards are basically evil and you are much better without their temptations and ease of spending. But I think it’s important to have at least one or two credit cards just in case you are caught short or have some kind of emergency and you just don’t have the cash on hand or handy at that moment.

I also like the fact that I don’t need to carry my cash around and that I can simply use my cards and earn bonus points and rewards when I do use them. Then I simply pay off my card balances each month so I never have any interest charges. It took years of self-discipline to be able to do that, but you may be a faster learner than I was and it may become an asset for you. It can work that way.

Applying for credit cards?

Credit cards, whether they’re through a bank or through a retail store, each have a different set of requirements. In fact, retail store cards are some of the easier to get, even with bad credit. However higher-end credit cards with loads of perks and benefits and lower interest rates often require an excellent credit history to obtain.

If your score is above 760, for instance, you will most likely be approved for almost any credit card from major issuers including premium cards with excellent rewards and benefits.

Those with a credit score between 700 and 759 will most likely be approved for good cards and good terms from major issuers, but not the high-end cards. Applicants with a credit score below 600, on the other hand, will most likely only be approved for store credit cards or secured cards (ones that you actually have to deposit your cash into in order to use the card…designed for people with bad credit).

How to check your credit

The time to check your credit is before you need to use it, but how do you check it? Use a site like WalletHub, which lets you see your credit score and credit reports for free (no credit card required). Be sure to look over your reports for any errors and report them to the credit agencies.

Final Thoughts

There are even more nuances to know about using and improving your use of credit and you can check on how to improve your score in my previous post.

Always keep in mind that your credit score is like a report card you’d get if you were in school. It tells the story of how responsible you have been and predicts how you will be with your future finances. It spells out how limited or unlimited your purchasing power will be.

When you are first starting out on your own, you start with an untested clean record and that clean record is what you want to have forever if you can. No record of missed payments, late payments or defaults on debts, now or ever. As you mature and you want and need your credit to be part of your life, you need to stay alert and on top of your score. Look for ways to keep it nearer to the top like 850 with Experian for example, one of the big three agencies, and away from the low zone numbers in the 500-somethings.

If you’re not prepared, you’re in for difficulties even with the most routine life decisions when you most need or want to make them!

Do you know your credit score right now? Do you monitor it (for free of course!) regularly and know when any mistakes appear on your credit report? Have you been a good money manager of your credit or have you had difficulties? What ways do you follow to insure you maintain an “excellent” credit record?

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