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Get smart about credit: How good – and bad – credit impacts your life
Key takeaways
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Credit affects employment, housing, and loan opportunities. Potential employers and landlords may check your credit, as well as lenders
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Bad credit may create cascading financial costs and barriers, affecting loan rates, insurance premiums, and utility deposits
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Consistent positive habits—like paying bills on time and keeping credit card balances low—can gradually improve credit scores over time
Your credit score affects far more than just loan approvals. From landing your dream job to securing that perfect apartment, understanding how credit affects your daily life can help you take control of your financial future.
And once you know how credit can impact your life, the next step is to find ways to improve it.
Whether you're just starting to build a good credit history or looking for steps to repair credit after a setback, take a few minutes to learn about navigating the complex world of credit.
How good credit can benefit you
A strong credit history can open doors for you throughout life, often in ways you might not expect. Here are three key areas where good credit can make a meaningful difference:
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Getting a job. Many prospective employers use credit reports (with permission) as part of their hiring process.
Employers can’t see your actual credit score, but they can request a modified credit report that shows details about your debt and payment history, including accounts in collections and bankruptcies. This helps them assess your reliability.
This practice is particularly common for roles in finance, government, and positions requiring security clearances. However, some cities like New York have specific restrictions on what employers can ask about your credit history. How employers use credit reports varies significantly by location and industry
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Getting an apartment. Landlords routinely check credit scores and reports as part of the rental application process.
A low credit score might mean that you don’t get the apartment, or the landlord charges you a higher security deposit to offset perceived risk. A strong credit score can increase your chance of approval and could result in a lower security deposit.
Utility and cell phone companies follow similar practices. Negative information in your credit report could result in the need to pay deposits or higher rates for services
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Getting a loan. Lenders use credit reports to help determine whether to approve loans and what terms to offer. A strong credit history demonstrates your ability to manage debt responsibly, which could bring you significant financial benefits.
Good credit scores and interest rates are closely linked. If your score is higher, you'd typically qualify for a lower interest rate.
As a result, you could pay far less in interest charges over the life of a loan. On a 30-year mortgage for a house, for example, the difference between an excellent credit score and a fair one could mean paying thousands less in interest
How bad credit can hold you back
Poor credit could create a series of financial obstacles that can significantly impact your quality of life and limit your opportunities:
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Higher costs across the board. Bad credit typically results in higher interest rates on loans and credit cards, costing you more money over time
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Limited access to services. Poor credit can restrict your access to essential services. You may be required to pay deposits for utilities, cell phone service, or internet. Some service providers may even deny service altogether
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Housing challenges. Poor credit can limit your housing options and require larger security deposits. If you're looking to buy a home, bad credit may prevent mortgage approval or result in significantly higher monthly payments
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Higher insurance costs. Some auto and home insurance companies use credit scores to help determine premiums, meaning poor credit can result in higher insurance costs even if you're a safe driver with no claims history
How identity theft affects your credit
Your credit score could also be affected if your identity has been compromised. Thieves may open new accounts or make unauthorized transactions in your name, which could lead to missed payments, high balances, and other negative activity. There are signs to look for to see if you're a victim of identity theft, plus steps to take if it does happen to you.
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Suspicious activity on your bank statements. Check your bank statements for withdrawals or purchases you didn't make or can't explain. If you notice anything suspicious, contact your bank ASAP. Close all compromised accounts and dispute the fraudulent transactions
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Identify and dispute errors on your credit report. Look for accounts you didn't open, fake addresses, or inaccurate employers. If something doesn't look right, notify the three credit agencies, dispute any errors, and request both a fraud alert and a copy of your credit report
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A company you use has a data breach. Your name, bank account information, or Social Security number could be compromised if a company you use has a data breach. When this happens, notify all creditors with whom you have accounts, including banks and credit card companies
How to improve your credit score
Things like late payments, bankruptcies, collections, and foreclosures can stay on your credit report for up to 10 years. But if you start to use credit responsibly again, you can improve your scores over time. It's never too late to practice better money management skills and work towards building a good credit history.
Here are some proven strategies that can help improve your credit score:
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Pay bills on time. Payment history is one of the most important, if not the most important, factors in your credit score. To avoid missing due dates, set up automatic payments or reminders
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Keep credit card balances low. Your credit utilization rate is another major factor in credit scores. Credit utilization indicates the amount of available credit you are using. Having a very low rate demonstrates responsible credit management, so try to stay as far from your credit limit as possible
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Don't close old credit cards. The length of your credit history matters, so keep older accounts open even if you don't use them. This helps you maintain a longer average account age
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Review your credit report annually. Take advantage of your free credit report check from each of the three major credit bureaus through annualcreditreport.com. Look for errors and dispute any inaccuracies. Even small mistakes can hurt your score
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Limit new credit applications. When you apply for credit cards, auto loans and other forms of credit, the lender can perform a hard inquiry into your credit report. One of these can temporarily lower your score, so only apply for new credit when necessary. Space out applications by six months when possible
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Consider a secured credit card. If you're rebuilding credit, a secured card can help demonstrate responsible payment behavior while limiting your risk
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Pay down existing debt. Focus on reducing overall debt levels, particularly on credit cards. Consider the debt avalanche method (paying minimums on all debts while focusing extra payments on the highest-interest debt) or the debt snowball method (focusing on the smallest balances first to build psychological momentum)
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Monitor your credit regularly. Many banks and credit card companies offer free credit monitoring services. Regular monitoring helps you track progress and quickly identify any issues that need attention.
Remember, improving credit takes time and patience. Whether you're building credit for the first time or working on steps to repair credit after financial difficulties, the key is maintaining consistent, responsible financial behavior over time.