Good credit is not something that is needed only if you plan on flipping buildings one day. Good credit is something people need on various occasions throughout their life.
In this post, I will make the case of why having good credit is important for everyone – no matter what you plan on doing in life. Whether you’re a plumber, real estate investor, or college student – you need good credit.
1. Buying a Home
In order to get a bank to approve you for a mortgage, you will need to have a good credit score. Income alone is not enough, even if you earn a million dollars a year. As a matter of fact, for a mortgage, credit is even more important than income. If your income is not perfect, then you can still have someone co-sign on the loan and get approved. But if you don’t have good credit then even a co-signer will not help you.
When applying for a mortgage, good credit will also make a difference in the interest rate you will be paying. The higher your score is, the better the interest rate that you’ll receive will be. So starting early on and building a good credit score can save you thousands of dollars in interest for when you decide to buy a house.
FICO estimates that a borrower with an 800 score might have an interest rate that is 1.5% less than a borrower with a 680 score. The difference for a $300,000 loan might be more than $3,000 annually!
2. Applying for Credit Cards
When applying for a credit card, banks will check your credit score and based on that, they will determine if they want to approve you for a credit card. In order for you to get approved for a credit card (and come on, barely anyone uses cash anymore) you need to first build credit.
We often have people reach out to us that they need a credit card asap because of a new business they opened, the need to rent a car, or just to get a good welcome bonus. But when I ask them about their credit score they tell me that they never built credit, as though they figured they’ll build credit when the need arises. When you need credit asap, it is too late to start building credit. You need to start building credit as soon as you turn 18 so that when you need to use your credit later on in life you have it.
3. Getting an Auto Loan or Auto Lease
When applying for an auto loan or car lease, banks will always pull your credit before approving you for the loan. In order to get the best deals on an auto lease (the advertised rate), banks will want you to be in the prime credit category, which is usually a 720 plus credit score.
4. Getting Auto Insurance
When shopping for auto insurance, a good credit score will work to your advantage. Insurance companies look at someone who is responsible for his credit as someone who is also responsible when driving and therefore deserves a lower premium.
The Money magazine published an article with a research report that shows that a poor credit score can have a bigger influence on your insurance quote than a drunk-driving conviction! Astonishingly enough, auto insurances find that a person with a poor credit score is more likely to cause an accident than someone with a DUI conviction!! (Based on this, you may want to ask the driver before entering a car what his credit score is!).
5. Getting a job
When seeking a job, those with great credit history have a better chance of being chosen to fill a position than those with poor credit history. Employers will ask for consent and pull an applicant’s credit report before hiring employees.
It is believed that about 60% of employers will factor in a credit report before hiring a candidate for a job. A survey conducted by Demos found that one of ten people denied for a job was due to credit!
6. Renting an Apartment
Landlords may request to view your credit report before allowing you to rent their apartment. An applicant with poor credit history may result in a landlord asking for a larger deposit, asking to find a co-signer, or not renting out the apartment at all.
Landlords don’t look as much on your credit score before denying a potential tenant, as much as they look for charged-off accounts, public records showing judgments, bankruptcies, etc., showing that you were in deep financial trouble. But if a landlord has two applicants to choose from, I believe a good credit history may be a reason for the landlord to choose you.
7. Getting a business loan
Most small business owners cannot obtain a business loan for their business without a personal guarantee. In other words, the bank will not approve the loan if the business owner or the signer on the loan does not have good personal credit. It’s important for a business to slowly build good business credit but it is just as important to build personal credit as that’s the score that will be used at least until your business has approximately $5,000,000 or more in sales.
8. Applying for home utilities
When you apply for home utilities the utility provider will want to run a soft pull on your credit report to check your payment history. Just like a bank lends you money, the electric company is lending electricity to you for 30 days and they hope you will pay at the end of the month. Someone who does not have an established track record of paying their credit card or loan payments, the utility company will be hesitant to lend them the utilities without first taking a security deposit to protect them just in case they fail to pay.
Here in this post I only included a few examples, but of course, there are many more situations where credit may impact something big in your life. So please be a pro and make sure you’re the one with the best credit score on the block!
Want to learn how to build credit from scratch? You’re at the right place! Here at HelpMeBuildcredit.com we do just that. We help people build credit. Check out our most recent post How to Build Credit at 18 – Four Easy (-as-pie) Steps
Wishing You a Lot of Success on Building Your Credit!