The way your credit score has an impact on your everyday life cannot be overstated in today’s financial landscape. As a Canadian, your credit score has a heavy influence on your life, including the purchases you’re able to make throughout your life. Your credit score will determine whether you’re considered for leasing a rental property, as well as what types of insurances you can obtain and for what cost. Understanding how your credit score impacts your financial autonomy can empower you to make informed decisions for your financial well-being. In this article, we’ll explore the different types of impacts your credit score can have, and how you can start navigating barriers resulting from a low credit score.
Credit Score Impact on Renting a Home
Your credit score plays a major role in your rental application when trying to find housing. Landlords and realtors use your credit score to determine if they are able to depend on you to pay your monthly rent regularly and on time. The rental market in Canada is especially competitive, which is why a low credit score can be an immediate turn off. Many landlords will desire a score of at least 650, with around the 700 range being ideal. If you have a low credit score on your rental application, landlords may raise their terms for the rental agreement, which could mean a higher monthly rent or an agreement to pay several months ahead. Otherwise, a landlord may deny your application altogether.
Maintaining a good credit score when browsing for rental properties will set you apart from other applicants, opening more doors on your rental journey and providing you with more negotiation opportunities.
Credit Score Impact on Your Mortgage Options
We all aim to reach the milestone of purchasing and owning a home, but our ability to do so can also be influenced by our credit score. Realistically, you will have to secure a mortgage in order to be able to buy a home. The types of mortgage products available to you may be limited, or expanded, based on your credit score. Mortgage brokers will also use interest rates for those with lower credit scores to deter them from not making payments on-time. If you are seen as particularly high-risk, your mortgage application may be denied.
The higher your credit score, the more favourable your mortgage rates will be. Although it may not ultimately seem like much, the amount you save from a more attractive mortgage rate will eventually add up to thousands of dollars. If you are working on improving your credit, you can look into what specific scores are needed for different mortgage products in order to determine when the best time to get a home would be.
The Impact of Credit Scores on Car Loans and Auto Insurance
Lenders use your score to evaluate your risk level and trustworthiness as a borrower, and this will directly impact the terms of your car loan. Typically, for individuals with lower credit scores, this will look like higher interest rates, and higher down payments required. This can make a car much less attainable.
Your auto insurance provider will also look at your credit score to assess your risk, and will use this information to guide what terms they can provide for you. If you have a bad credit history, you may pay higher premiums than you would if you had a better credit score.
Credit Scores and Their Influence on Personal Insurance Rates
Other than car insurance, there are other types of insurance that will be impacted by credit scores. This can include personal health insurance, life insurance, and home insurance. Those with favorable credit scores are perceived by insurance providers as less likely to require large financial pay-outs, allowing providers to be more flexible in the terms they provide. Of course, this means that those with lower credit scores will face higher costs and limited options.
Credit Scores in Employment: How They Can Affect Job Opportunities
Although not commonly spoken about when it comes to credit scores, your credit does have the potential to negatively impact your job prospects. Some employers do conduct credit checks, mainly for positions that will have you be responsible for company finances in some shape or form. A low credit score will raise red flags as to whether you are capable of managing finances on a larger, corporate scale. If you haven’t already, you should take the time to improve your credit score if you work in the financial sector.
Common Myths About Credit Scores Debunked
“Checking your credit score causes it to go down.” – WRONG!
Checking your own score is actually a soft inquiry, which will not impact your credit. What does affect your credit score is when lenders review your score. This is a hard inquiry, and it will have an effect on your score. Don’t worry though, this effect is typically minor and short-lived.
“You need a credit card balance in order to build your credit score” – WRONG!
Although activity on your credit card is vital in building your credit, this does not mean you should allow debts to accumulate. Maintaining a low balance or, even better, paying off your credit balance completely each month demonstrates responsible financial management.
Conclusion
The implications of your credit score extend far beyond just lending; they permeate essential aspects of daily life, influencing everything from housing options to insurance costs. By understanding the importance of a good credit score and taking proactive steps to improve it, you can significantly enhance your financial opportunities and security. Whether you are renting, purchasing a home, or applying for jobs, managing your credit effectively is a crucial part of navigating the modern financial landscape in Canada. Empower yourself with knowledge and strive to maintain a healthy credit score—it’s a vital tool that can open many doors throughout your life.
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