What does your credit history have to do with personal finances?

Credit scores act as a proxy for your ability to pay back debt and service liabilities that might be given to you. Due to your credit history being so important in demonstrating your fiscal responsibility and habits, it can affect almost every aspect of your life. 

Loan and credit card approval

Most banks and financial institutions run credit checks on customers before approving loans of any kind or credit cards. If you have a bad credit history, it is easy for a loan officer to decline your request. This is because banks want to lend to customers that have a demonstrated record of meeting debt obligations in order to prevent losses. This can make it harder to make large purchases like cars and homes down the line. 

Interest rates on loans and credit cards

Even if you get approved for a loan, if you have bad credit, banks may charge you higher interest rates on borrowed money. Similarly, the APR charged by your credit card issuer can be higher if your credit score is low.

Apartment leases

Since a rental or lease agreement relies on you making consistent payments to the landlord, he or she can run a credit check on you before handing you the lease. This means that if your credit history is bad, your lease can be terminated or your security deposit can be increased. This concept also applied to cell phone contracts and if your credit is low, you might be required to pay more upfront for your phone. 

Security deposits

Often, while signing up for utilities like water and electricity, the utility company can run a credit check against you and charge you a hefty security deposit if the score is on the lower end. 

Insurance

While credit history is not the only factor that goes into the calculation of insurance premiums, it is one of them. Generally, if your score is low, you will pay a higher premium on your insurance contract. 

Employment

Most employers run background checks on incoming employees, and one of the aspects they check for is credit. Extremely low credit can be a sign of bankruptcy and can be a liability to your employer. While people being fired for having bad credit is rare, it can still happen. 

Starting your business

Starting a business often requires high amounts of upfront cash and sources of financing. As an entrepreneur, you can have a hard time finding lenders if you have a bad credit history, and as a result, find it extremely difficult to fund your business.