If you think you don't need to check your credit score or be wary of identity theft, that attitude could be harming you every day.
If your score is under 661 (considered the low end of prime credit) you may carry balances on several credit cards, make late payments, have debts in collections or have some combination of those negative factors.
Are you stuck in an old mindset? Or are you on top of trying to improve that score? There is a better way to do things and it won't cost you a dime to find out about it.
How avoiding your credit hurts you every day
Consider the car you drive every day. With a poor credit score, you will pay significantly more in interest over the life of your car loan because you didn't qualify for a lower interest rate. You could be stuck driving an old and possibly unreliable car longer than necessary because you can't qualify for an auto loan at all. Even worse, you can get snagged by the predatory lending practices at a "Buy Here Pay Here" car lot offering super-high interest rates up to 24% and a loan packed full of extra charges you didn't know you agreed to for extras you don't want or need, according to the Center for Responsible Lending.
I found the proof in a recent Experian industry report I came across on the auto loan market at the end of 2015. The report showed that those with good (prime) credit scores of 661-780 received an average 3.55% interest rate for their auto loans while those with lower nonprime credit scores of 601-660 paid nearly twice that interest rate at 6.25%. Even worse, those with poor (subprime) credit scores of 501-600 paid an average interest rate of 10.36%. That higher rate can result in a difference of thousands of dollars in additional interest charges by the end of the loan term.
The scenario is similar in the mortgage loan industry, where an interest rate even half a percent higher equals tens of thousands of dollars difference over a 30-year loan term.
It's not just that you'll pay more for every kind of money you need to borrow. Poor credit could cost you that job you want. Did you know that you could be passed over for a job when the employer finds that you have poor credit? They might opt to hire an applicant who has better credit and shows more financial responsibility, which many human resources professionals think translate to honesty and integrity on the job.
Quick Tips: Don't ever click on suspicious links in emails and secure your devices with strong passwords (make sure to create a combination of numbers, capital letters, and characters).
Why are you avoiding your credit?
I read an interesting 2009 study on money behaviors which found that many people avoid money because of deeply rooted beliefs about money that may bring up feelings of fear, disgust or anxiety.
You may believe that money is bad or that you don't deserve money. Some money-avoiders hurt themselves by not spending money on necessary purchases. Other money-avoiders try to give away their money so they have a little as possible to deal with. In the study, those who avoided their money had lower income and net worth than other money belief groups.
The study also found that people between 18 and 30 years old were significantly more likely to be money-avoiders than older age groups, which may prove that people can learn how to use and control their money responsibility.
Even if you're avoiding your credit for fear of overspending and debt, by ignoring it you can sabotage your current and future financial success.
You're avoiding your credit if you...
- Ignore your credit score. When you turn a blind eye to your credit score, you have no idea how lenders and employers see you. When you have good credit and you know it you can use it as leverage in negotiations with lenders. You can interview for jobs confidently and pay less for your next car loan. Sign up for a free account on Credit Sesame for your free credit score and check it every month.
- Overlook your credit report. When you pay no attention to the information reported by others in your credit report, you open yourself up to reporting errors and fraud. Consumers who monitor their credit reports find and dispute fraud sooner than those who don't. In doing so, they save time unraveling and proving the fraud, and they save money in legal fees and other costs. Carefully check all three bureau credit reports once per year (or one bureau every 4 months) for free at Credit Sesame.
- Don't monitor your credit. Those who are more engaged with their credit score and report have higher credit scores. That's because it's exciting to watch the score rise as you learn and adopt more responsible credit habits and work toward financial goals. Credit Sesame updates your score once per month and even sends you a reminder to check it out.
- Recklessly apply for credit cards or loans for which you might be declined. When it comes time to apply for a loan or a credit card, you should have a precise idea of which types of loans and credit cards you're likely to be approved for. You'll waste time and possibly money applying for financial products that are not the best deals for you or that you don't qualify for, and you'll ding your score in the process. Part of the Credit Sesame free credit score service is tailored advice about the loans and credit cards that are right for you, based on your goals and credit score.
- Abandon credit. Have you given up on credit completely because you think your score is too low or because you have no plans to buy a house or car any time soon? You're ill prepared for an emergency. Most of us need access to credit at some point in our lives. Sometimes the need is planned, sometimes not. Great credit takes time to build, and if you abandon credit you aren't even on the journey to good credit yet. Great credit starts with the first step. Credit Sesame will give you free, specific advice about which actions you can take to improve your credit, so that you can take the right action.