Why You Should Care About Your Credit

pexels-photo-259200There’s this sentiment buzzing around in the personal finance space that you shouldn’t really care about your credit if you truly want to improve your finances.

Credit is an interesting concept. It’s the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. Basically, you receive a rating based on your ability to borrow money and pay it back in a timely manner.

If you’re keen on avoiding debt and having complete control over your money, you may not want to play the credit game and I understand that. However, I don’t think it’s always wise to just write off the idea of having good credit. Your credit score may come in handy one day and actually help you stretch your budget without feeling unstable financially.

Here are a few reasons why you should care about your credit score.

1. Lower Insurance Premiums

You may not know this, but some insurance companies rely on your credit rating to help determine how much your premiums will be. This is very common for auto insurance. If you’re a young person, you know that you’ll already be at a disadvantage because your insurance rates will be higher.

With a good credit score, you may be able to cut that monthly cost down.

Also, your credit can come in handy when getting homeowner’s insurance. According to a 2014 WalletHub study, someone with fair credit pays 29% more for homeowner’s insurance than someone with excellent credit.

2. Potentially Better Job Prospects

When I heard that some employers run a credit check on candidates before hiring them, I couldn’t believe it. Personally, I’m not in a job field that does this but I know some people who are. I heard of a woman being denied a promotion at her job because her credit was so bad.

Why does credit play a role at your workplace? It allows some employers to witness your reputation with handling money first hand. A credit check can assess your trustworthiness or even expose any theft or embezzlement history that the employer would want to avoid.

3. Score a Better Interest Rate on a Mortgage

Probably one of the most important reasons to care about your credit and maintain a good score is so you can receive a low interest rate if you take out a mortgage.

If you’re looking to buy a house and can’t afford to pay for it in cash. You’ll need a mortgage. A mortgage is probably the only type of debt I’m willing to take on because homes are so expensive and it’s a huge purchase.

If you don’t have any credit or a have a low credit score, you can expect to pay a higher interest rate on your mortgage. This is something that shouldn’t be taken lightly either. A higher interest rate on a 15 to 30-year mortgage can cost you tens of thousands of dollars over the life of your loan.

4. Score a Better Interest Rate on EVERYTHING

This is where credit naysayers would object, but with a good credit score, it becomes easier to score the best interest rates on everything from credit cards, personal loans, etc.

This doesn’t mean you should run off and borrow a bunch of money you can’t afford to pay back. It does, however, mean that when you need to take advantage of the perks of having good credit, you can.

It’s definitely better to have a fully funded emergency fund than to rely on a loan to cover unexpected expenses, but if you’re ever low on options and need more money than you have for a one-time emergency, being able to score a low or even 0% interest rate can be very helpful. In the case that you need a new car but can’t afford to pay for one in cash, you can use your good credit to score a low interest rate.

5. Able to Take Advantage of Credit Card Rewards

This is one of my favorite perks of caring enough about my credit to maintain a high credit score. Earning credit card rewards isn’t for everyone, but it’s a great way to save money on everyday expenses and even afford expensive travel opportunities.

My husband and I used credit cards rewards to spend a week in the Caribbean for our honeymoon for next to nothing. We also went to Disney World this year and scored a discounted hotel stay and a free flight for my son thanks to credit card rewards. If you’re going to use a credit card to earn rewards, make sure you pay off all your balances in full each month.

Earning rewards isn’t worth getting into debt and if you carry a balance on your card will just cancel out the benefits.

6. Ability to Cosign For Your Kids

A final reason why you should care about your credit is because your kids or loved ones may need your help. If you have kids, when they get older, they may need a cosigner for their student loans or a car loan for example.

I never had anyone in my family who could cosign for me when I was trying to build my credit so I always got stuck with a ridiculously high interest rate in the beginning stages.

If you care about any of these 6 things, you should probably care about your credit score to some degree. It’s not the most important part of your financial profile, but it does make a difference and can even help you save money sometimes. Just be careful not to go overboard when it comes to overspending and realize that you don’t need to get deep into debt to build your credit.

Get Yourself Added To Someone Else’s Credit

As a final note, if you’re interested in improving your credit score and you’re having a hard time, you have options.  One choice you have is buying a tradeline.  A tradeline is an entry in a persons credit score.  The idea behind buying a tradeline is you get yourself added to a trustworthy person’s credit score.   It works for the short term, but you’ll need to address the underlying problems of why you don’t have a good credit score.

Do you care about your credit score? Why or why not?

Posted in: Credit and Debt

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