Why Is Credit Important? 6 Reasons to Keep a High Credit Score
Credit cards can either be the best thing you’ve ever put money into or your worst nightmare. You have to know how to manage your finances well when applying for them and be cautious of over-swiping your card in order to avoid racking up debt.
But, your “credit score” is about much more than your credit cards.
This number takes all of your outstanding debts into account, as well as your payment history on those lines of credit and how much new credit you’ve taken on. It calculates everything from credit cards to student loans, car payments, and rent.
It can be a tricky thing to keep track of. However, it’s critical that you have at least a basic understanding of your credit score and ask the question, “why is credit important?”
Here are 6 common situations in which your credit score makes a big difference.
1. Renting an Apartment
Renting an apartment is a lot more complicated than choosing your side of the dorm room or going back to mom and dad’s house. It requires you to do research, budget, and make sure all of your affairs are in order – which includes your credit score.
When a landlord looks at your application, they’re assessing how much risk they’d take on by having you as a tenant. Someone with a bad credit score is a liability for them because there’s a high chance that this person doesn’t pay their rent as opposed to someone with a good or excellent credit score.
This is because your credit score is a reflection of your financial habits. If you want that nice new place, you need to be able to show that you can pay for it every month.
2. Buying a House or a Car
Maybe it’s not a landlord that you’re dealing with but a real estate agent. In this situation, you will also need to have a good credit score.
Big purchases like buying a house or a car typically don’t happen all at once. Instead of paying for such things in full, most people take on a payment plan – in these cases, a mortgage or a car payment.
But again, the people/institutions you’ll be making these payments to need to know that you can follow through on your end of the deal. They’ll do a credit check to not just assess your score, but to get a better understanding of how you’ve handled big payments in the past. This gives them a good idea as to how well you’ll manage your new expense.
3. Refinancing a Large Purchase
Refinancing allows you to pay a lower monthly fee for big purchases like your mortgage or your car. It’s a nice way to cut back on monthly expenses if you’re trying to save money or trying to make room for new expenses.
This isn’t necessarily a sign of poor financial habits, but it is typically done when someone finds themselves in a jam with money. Still, you’re more likely to get approved for refinancing if you have good credit. Otherwise, it’s hard for lenders to trust that you’ll pay regularly, even for a lower monthly expense.
4. Refinancing Student Loans
Refinancing student loans can seem more intimidating than refinancing a car or a mortgage. But, it’s not as bad as you may think, especially if you have good credit!
Sometimes, it’s actually smarter to refinance student loans than to mess with your mortgage or car payment plans. The decision on what to refinance comes down to the financial situation of each individual, but it’s good to know what your options are. Make sure this is available to you if you ever need it by maintaining a good credit score.
5. Applying for Jobs
Here’s one of the more surprising reasons why good credit is so important: it could be the difference between getting a job and not being offered one. Just as lenders want to weigh the risk of whether or not they’ll get paid, employers want to find the most reliable, trustworthy candidate for an open position.
Although money isn’t everything, the way you handle your money can speak volumes about your overall level of responsibility. If you have good credit, you’re probably a disciplined, hardworking individual. You likely have had steady jobs in the past that have allowed you to build such a score, rather than bouncing from one form of short-term employment to another.
These are things employers are looking for. They’re much better qualities to have than to be someone who is frequently looking for a job or struggling to make ends meet due to financial carelessness. Of course, this isn’t always the reason why someone has bad credit, but it is a red flag to a person who needs to know whether or not they can trust you and count on you.
6. Starting a Business
The final reason you should maintain a good credit score is to make starting a business more accessible to you, should you ever choose to walk the path of an entrepreneur.
Most people who want to open a business take out loans to do so. They go to banks or to investors with a business plan and ask for the startup funding necessary to get the company up and running.
Your chances of getting the loan you need are incredibly slim if you have bad credit. You’ll have to look for other resources like loans without guarantor requirements or crowdfunding opportunities. These can still get you the money you need, but a more traditional business loan is usually the best way to go.
Why Is Credit Important to You?
Some people don’t think twice about their credit score while other people lose sleep over it. Ideally, you want to be somewhere in the middle. You shouldn’t overlook the value of good credit, but you don’t need to let your score consume your life.
If you have bad credit, start making small steps to improve it. Focus on where you want your credit score to be and don’t get down on yourself about where it is now.
If you have good credit, start learning how to leverage it. Use it to apply for the mortgage of a house you’d like to buy in the next year or to get a fancy travel credit card within the next few months. Whatever it is you want to accomplish, identify why is credit important to you and use that as motivation to build an even better score than you already have.
For more financially savvy tips and tricks to help you make the most of your money, click here.