What Do Credit Scores Impact?

A credit score impacts every area of your financial life. The three-digit number ranging from 300 to 850 points reveals to creditors, insurance and finance companies how well you manage your money. Credit scores reflect information found in your credit report, such as your payment history and debt amount. Because a credit score impacts your ability to get additional credit, qualify for a loan or insurance and determines what interest rates you pay, the Federal Trade Commission suggests you learn your score.

Credit Cards

Your credit score impacts your approval rate for new credit and the finance terms offered. A high credit score reflects a positive payment history, so card limits will be higher and interest rates offered will be lower. Those with low credit scores are often squeezed out from traditional credit card markets and limited to using secured credit cards, a type of card that requires a bank deposit for the amount of credit extended.

Loan Qualification

Credit scores impact your ability to secure a home or car loan. Although a lender considers other factors such as your income level and job stability for loan qualification, your credit score also influences the amount a bank is willing to lend you and on what terms. Higher credit scores qualify for lower rates and higher loan amounts. Conversely, if your credit score doesn't fall within a specific point range acceptable to the bank, you may fail to qualify for a loan.

Insurance Policies

Your credit score can impact your ability to qualify for some insurance plans, according to the Insurance Information Institute. Credit scores are used, along with age, gender, claims filed and driving record, to generate an insurance score, a number which helps an insurer select future policyholders and determine what rates they pay. A 2004 study by the Bureau of Business Research at the University of Texas found there is a correlation between a person's credit score and insurance risk. Those with lower scores statistically file more claims and so pay a higher premium than those with higher scores.

Bottom Line

Find out your credit score before you apply for a loan, credit card or purchase an insurance policy. You can order your credit score for a fee from either the Fair Isaac Company or from one of the three credit bureaus, Experian, TransUnion or Equifax. In general, a score below 600 is poor and a good score is 750 points or higher. Eliminating debt and paying your bills on time can improve your score and result in higher credit limits and lower interest and insurance rates.