You’ve probably heard about the importance of good credit from just about every financial professional out there.
Having good credit and a good credit score are the first things that lenders, banks, investors, and any other financial institutions look at when deciding to work with you.
So why do we want to focus on building credit and increasing our credit score?
Let’s go over some of the advantages of having good credit and how it can benefit many aspects of your life.
1. Better Chance of approval for credit cards and Loans.
Getting approved for a credit card or most loans depends primarily on your “creditworthiness.”
The term creditworthiness can mean different things for different credit products, and in some cases even different lenders.
Most lenders and banks use a formula when approving a credit card application or loan, and it can get very complex. But lets simplify it a little bit for you.
A big factor of creditworthiness is how “risky” you are to a lender.
If you pay all of your bills on time, every time for at least the minimum payment, you will likely be considered less risky.
The other factor for creditworthiness is how much debt you are carrying.
If your debt is too much compared to the amount of income you make, you might be considered “risky” to loan to. And that can hurt you chances of credit card or loan approval.
The bright side is, you can work on reducing debt and build good repayment history. This will help your credit score improve, and in turn, your creditworthiness will improve.
Pro tip: Keep your borrowing to a minimum if you have having trouble paying off minimum balances.
2. Easier approval from landlords
Having good credit can help you more easily score a place to rent.
Most landlords will do a credit check when they evaluate your rental application. They do this to get a picture of your credit history and see if you have consistently made housing payments in the past.
They can also check for risk such as unpaid utilities, bankruptcy, and eviction.
By building good repayment history and minimizing debt, you’ll be more likely to be approved for your next place to rent.
3. Better car insurance rates
Car insurance, no matter where you live, can get very expensive. However, with good credit and safe driving habits, your insurance prices can come down and coverage can go up.
Insurance is a safety net to protect you and your vehicle in the event of an accident and damage. The better insurance coverage you have, the less risk you take on.
Having good credit can also impact the discounts you qualify for with your insurance provider. It can lower your premium and even your deductible in the event that something happens to your vehicle and you need to get repairs.
4. More negotiating power
When you have good credit, you can cultivate better negotiating power.
Meaning, for things like mortgages, auto loans, personal loans, and even business loans, you may be able to better negotiate the terms.
When you sit down with a loan officer/originator, in some cases you can negotiate the terms of the loan. Terms are things like how long you have to repay the loan, how much you will borrow, and even how much interest you will pay over the “life” of the loan.
Your good credit can make you less risky to lenders and investors. So the better credit you have, the more negotiating power you can have.
5. Utility activations (likely) without a security deposit
When moving to a new residence, you will need to set up utility services there. That means getting electricity, water, sewer, and even gas activated depending what your new home needs.
In some cases, utility companies may run a credit check to determine whether or not you will be able to consistently pay for your utilities. If you’ve had trouble paying utility bills or other debts in the past, the utility companies may require a security deposit to activate services.
Conversely, if your credit is good, you may not have to pay a security deposit at all.
The information in this blog post is intended for educational purposes only. Please consult your financial advisor for financial decisions.