These Big Life Events Can Significantly Affect Your Credit Score
Life changes constantly; that’s a given. And in the midst of everyday life, major milestones take place that can impact your credit score. Those very milestones can raise or lower your score, which can ultimately put you in a better or worse position for meeting all the many milestones that lie ahead.
Here’s a sampling of some of life’s significant events that can impact your credit score – and your ability to manage finances and borrowing in the future.
First Credit Card
The length of your credit history accounts for 15% of your FICO score; you’ll need to have an account open for at least six months before you get your first score. Regardless of when you get your first card, it’s important to use your card responsibly. Making punctual payments is the biggest influencer on your score, and accounts for up to 35% of the final number.
If you find yourself struggling with making payments, consider credit card consolidation or credit card refinancing. A lower card balance can help your credit score by reducing your credit utilization ratio, which indicates how much credit you’re using compared to how much credit is available.
Your academic record won’t affect your credit score, but any student loans that you’re carrying will. Student loan payments are reported to credit bureaus and they’ll be added to your credit mix, which accounts for approximately 10% of your FICO score. Making student loan payments on time will help keep your credit score high.
When you get married, your credit score is no longer just your own: Any joint accounts will show up on both of your credit reports. How well each person manages their own debt can ultimately impact both credit scores.
Should your marriage unfortunately end in divorce, you’ll be responsible for any shared credit cards and loans opened while you were married. Until you have your name legally removed from the accounts, you’ll be responsible for any debts accrued during the marriage. According to a MoneyWise survey, about 40% of respondents said they were responsible for at least $5,000 in debt following a divorce.
You’ll need a solid credit score to qualify for your first home loan; a great credit score could allow you to take advantage of the lowest interest rates available at that time.
Missed mortgage payments can put a serious dent in your credit score, even if you’ve had years of good credit. If you find yourself struggling to make the monthly payment on your home, look into forbearance to put your bills on pause or consider refinancing to a lower rate to make your mortgage more manageable.
A good credit score makes securing a loan in your retirement not only possible but also affordable, which means the cottage by the lake you’ve been dreaming of could become a reality. In addition, you could save on both your auto or homeowner’s insurance, both of which take into account your credit score when calculating your premiums. To maintain a high score as you age, keep your old accounts active in order to preserve your good credit history, especially if the account doesn’t require any annual fees.
It goes without saying that big life events can bring joy or sorrow, anticipation or exhilaration. But if you plan wisely, you can relax knowing they won’t bring down your credit score.