Building and maintaining your credit may be more important than you realize.
Having high credit scores isn’t just for bragging rights — good credit can make life easier and less expensive. Even if you never plan on taking out a loan or opening a credit card, building your credit could still be helpful. Here are a few of the reasons why.
Good credit can help you qualify for the best rates and terms
Credit reports and scores are most often associated with financial accounts, and rightly so. Many banks, credit unions, lenders, and credit card issuers will review an applicant’s credit report and score before approving or denying an application for a new loan, line of credit, or credit card.
If you’re approved, your credit limit or loan amount, rates, and terms can also vary depending on your credit history and scores.
For example, based on the MyFICO loan savings calculator (as of Nov. 27, 2018), the interest on a $450,000 30-year fixed rate mortgage could vary from $532,235 for someone in the 620-639 credit score range to $372,371 for someone with a score of 760 or higher.
A higher credit score could lead to a lower interest rate. In this case, the person with an excellent credit score has $444 lower monthly payments and will pay nearly $160,000 less in interest over the 30 years.
In general, having higher credit scores and fewer negative marks on your credit reports can help you qualify for the best offers. However, other factors, such as your monthly income and debt payments, can also impact your creditworthiness.
Good credit could help you get and keep a job
Credit can be important outside of the financial world as well. Most states allow employers to request a credit check as part of the application process for a job. (Here’s a list of the states that don’t.) Your credit history may impact your ability to get a job, particularly for positions that require security clearance or are within the financial services industry.
A potential employer must get your permission before it can check your credit, and the report it receives from a credit bureau isn’t the same as the credit reports that are sent to creditors. It might not list your date of birth, for example, as employers generally shouldn’t base a hiring decision on an applicant’s age. Employers also don’t receive a credit score with your credit report—that’s a myth.
Some professional licenses can also require a credit check and maintaining good credit could be a requirement for renewing.
Landlords might only rent to applicants with good credit
Landlords and property management companies might require a credit check (and can sometimes charge for it) when you submit a rental application, and you might not get approved if you have bad credit.
What the landlord or company looks for can vary, though. In some cases, if you don’t meet their criteria, you simply won’t be approved for the rental unit. Others may be willing to rent to you if you pay a higher security deposit or have a creditworthy cosigner for the lease. Or, you might be able to get around the credit requirement if you have stellar references and lots of savings or a high income.
Bad credit could lead to paying more security deposits
Setting up your new home can also be more expensive if you don’t have good credit. Utility and telecom companies may require a security deposit if you have a history of paying bills late or your accounts in collections. You can get the deposits back when you close the accounts, but the extra upfront cost can make moving into a new home more difficult.
Your credit can impact your insurance rates
Some insurers may base your eligibility for insurance and raise or lower your premiums based on your credit. Credit-based insurance scores aren’t the same as consumer credit scores that lenders and other creditors use, but they’re based on the same underlying information in your credit reports.
As with employer credit checks, state laws may regulate how and when insurance companies can use consumers’ credit. Some states completely outlaw the use of credit-based insurance scores. Others allow insurers to consider your credit but may limit how and when they can use credit-base scoring.
If you live somewhere that allows insurers to use credit-based insurance scores and have poor credit, you may wind up paying a lot more for insurance. In 2017, InsuranceQuotes.com commissioned a study and found that some home insurance premiums more than doubled for homeowners with poor (versus excellent) credit.
Overall — higher credit could equal more money in your pocket
In short, good credit can make life easier and less expensive. It could help you get and keep a job, move into a new home, and lower your monthly bills. Plus, there are the more straightforward financial perks, like being able to qualify for the best credit cards and loan offers.
If you’re working on building or rebuilding your credit, you may want to regularly review your credit reports for accuracy. An error on your credit report, such as an account with an incorrect balance or a negative mark that should have fallen off your reports, may be hurting your credit scores and creditworthiness. Fortunately, you have the right to request the credit bureaus and creditors correct a mistake.
CreditDash can analyze your credit reports, find potentially inaccurate or untimely information, and then create the dispute letters that you can send to get your credit reports corrected.