In the United States our society is increasingly built around using credit to make not only purchases but financial decisions about people. Credit scores are used for more than just getting a credit card – they are used for a number of things from getting a home to getting a job.

Credit scores demonstrate your “credit worthiness” which shows your history of paying off debts as an indicator that you are responsible with your finances.

For most people having a good credit score gives you amazing benefits.

Why do you need a GOOD credit score? 

The unfortunate reality is that your credit score matters. 

Good credit gets you access to better rates, allows you to pay less on big items like homes and cars, and even determines your ability to qualify for certain jobs or rentals. 

You don’t have to love debt or need credit card debt to get a good credit score. In fact, I hate debt. But I also live in the real world and out here your credit score is a tool that can open up doors to a better experience in life.

Having no credit sounds like an amazing idea but in the real world it makes things much harder. You will have access to fewer companies when you apply for a mortgage because many won’t do manual underwriting. You’ll  have access to less rental options because many landlords don’t want to (or can’t) go through the hassle of evaluating your finances and manually approving you. 

The fact of the matter is that having good credit opens up doors for you.

Benefits Of Having A Good Credit Score

Here are a few reasons why building a good credit score is important:

  • Good credit will get you better interest rates when you need credit for financing a large purchase.
  • Good credit means you will pay less overall on those big purchases you have to make on credit.
  • Buying a home requires a credit score with most lenders and the better your credit score, the better loan you will be able to get. 
  • Having bad credit can stop you from being able to buy a home at all until you improve it.
  • Your credit score determines your ability to rent an apartment and many won’t accept below 700.
  • Your credit score can affect getting certain jobs in certain industries where you have to appear trustworthy.

Let’s look at the benefits of having good credit in more detail.

Credit Affects Your Ability To Get A Mortgage

The most obvious area where having good credit matters is when you are wanting to get a loan to buy a home. Mortgage lenders base their decisions off many factors about your finances including credit scores.

Most mortgage products have a minimum credit score you must have in order to qualify. If you don’t have good credit you can’t qualify for the best mortgage loans and have to accept more expensive products with worse rates.

The interest rate you get on a mortgage is dependent on your credit score and that interest rate will directly impact how much you are paying each month on your mortgage. Low credit scores end up being very expensive when you learn how much extra interest you have to pay.

You Can’t Even Rent With Bad Credit

When you have bad credit you won’t even be able to rent certain apartments. Landlords can use your credit to decide whether they want to rent to you or not and many large apartment buildings have minimum required credit scores.

If you want to live in a certain area you may need to have good credit to be approved as a renter. Property rental is considered as a loan in some way and landlords want to make sure your credit is good enough that they will get paid each month.

Auto Loans Require Good Credit

Most people are not able to buy a car in cash in addition to their regular monthly expenses. It can take a long time to save up enough money to buy a car in cash and many people need to have a car to get to work before that.

Because it is difficult to buy a car in cash most people apply for a car loan in order to purchase a car. Your credit score will greatly affect whether this is a good idea or not because a good credit score means you can finance for nearly 0% interest but a bad credit score means you will pay much, much more.

Bad credit will cost you more when you get a car loan and can affect if you even get qualified and if you even qualify a bad credit score will limit the amount of money you can borrow. Bad credit scores limit your choices and end up costing you much more money.

Credit Can Affect Your Employment

Not ever employer checks your credit but many employers have started conducting credit checks as part of your hiring process. Employers will pull your credit report and evaluate your ability too pay back debt and handle your finances.

A bad credit history may convince an employer that you are not going to be able too handle the salary they can offer or you may be a risk in some way depending on the type of work. Employers may be hesitant to hire you when you have a bad credit history.

Credit Scores Affect Car Insurance Rates

Did you know that your credit score can affect your auto insurance rates? When you apply for new insurance the insurance company will check your credit in order to determine your rates.

Insurance companies will use information from your credit report and insurance history to develop your insurance risk score, which often penalizes people with low credit scores. If you have bad credit you will end up paying more for your insurance premiums than someone who has good credit. People with good credit scores routinely pay less for their insurance than similar applicants with lower credit scores.

Business Loans Require Good Credit

If you are planning to start a business and plan to take out a business loan then you will need good credit personally. When you are taking on business debt lenders will be using your personal information and credit profile to make their decisions in addition to your business plan.

Having good credit can help you start a business that eventually makes you more money than you would have made in a traditional job. Having bad credit can prevent you from doing this or make it more risky by taking on higher interest loans that put more stress on your new business.

Credit Can Affect Your Daily Living

While many services do not report your payments to the credit bureaus they do use your credit to determine factors about your account or whether or not they will establish you as a customer.

Utility companies will check your credit in order to see if you will be a customer that pays on time or not. Most utility services will conduct a credit check – from cable to cell phone providers to water.

Because all of these services check your credit it can be more expensive and difficult to afford normal living expenses if you have bad credit. Having bad credit shows your level of financial responsibility so having good credit will indicate to any service you need that you will be a responsible and worthwhile customer.

Having Good Credit Makes Life Easier

Clearly having good credit is important. It affects many areas of your life and having bad credit will force you to pay more for the same things others get at a much lower overall cost.

The good news is your credit score is something you can work to improve!

Here are a few posts where you can find tips to improve your credit score:

While you can’t improve your bad credit overnight you can start taking steps to improve your credit history and credit score today. In a few months you’ll start to see you credit improving and eventually you’ll have all the benefits of good credit too!