You’ve probably heard you need to have good credit, but do you know why? Good credit isn’t just about getting a credit card – it affects so much more. Your credit history can affect everything from your insurance rates to the type of house you can rent or buy to whether or not you land your dream job (yes, potential employers can check your credit history).
All this sounds pretty important, but we’ve barely scratched the surface of how having good credit can impact all parts of your life. So, just what are the specific benefits of having a good credit score? Read on to find out.
1. Access to the Best Credit Cards
If you’ve seen advertisements for the most attractive credit cards – those with awesome perks, great rewards, cash back and low rates – then you’ll need a good credit score in order to qualify. So in addition to paying lower interest and fees and racking up rewards like cash back and free travel, accessing better credit cards will mean you can get larger credit limits. You’ll have the freedom and flexibility to make the purchases you want and help you get other types of financing later.
Having larger credit limits increases your creditworthiness over time, which shows the bank you can handle the responsibility of having access to a large line of credit. Once you’ve done this, the bank will be more willing to extend larger loans to you, like a car or home loan. Credit cards aren’t just for shopping; they are a great tool to help you build a solid credit history.
Tip: If you need help building good credit, consider asking a close personal friend or family member to add you as a cosigner on a loan or credit card. You’ll share equal responsibility for the debt, but the loan will appear on your credit report, as will the history of regular payments. Just remember: any late payments will also show, so make sure you choose someone who is financially responsible.
2. Save on Car Insurance
While this benefit of having good credit may be surprising, it’s true: people with higher credit scores are more likely to be offered a lower rate on their car insurance.
Insurance companies consider risk very carefully before they extend insurance to customers. Given this, some insurance companies take your credit score into account when determining the risk and price of your monthly payments. You can’t be denied coverage solely based off your credit history, but if you have poor credit you are more likely to be offered a very high monthly premium. Consumer Reports estimates that single drivers with just good credit pay $68 to $526 more per year and those with a poor credit score add about $1,300 to their premium, on average.
Tip: If your credit drops after you snag a good deal on car insurance, the insurance company can raise your rates or even cancel your policy, so keep up your good credit habits. However, if you live in California, Hawaii or Massachusetts, consider yourself lucky: those are the only states that ban insurance companies from setting prices based off credit scores.
3. Better Job Applications
They need to get your permission first, but it’s not uncommon for a potential employer to ask a job applicant for access to their credit history during the application process. This is especially true if you’re applying for a job that requires handling money or accessing sensitive financial information.
Some red flags for employers include bankruptcies and late or missing payments, which can be signs you are irresponsible or untrustworthy. Employers may also worry that your financial troubles will keep you from meeting certain demands of the job.
But if you’ve shown yourself to be a financially responsible individual, then employers are more likely to see you as trustworthy and dependable, which will increase your chances of being hired. Your credit rating often speaks to how responsible you are, so it’s not just about being able to get a new credit card, your credit rating affects some of the most important parts of your life.
Tip: If you’re applying for a job that requires a credit check and your credit history has some major flaws, have a candid conversation with the hiring manager. Be honest about what happened in the past, but be sure to include how you’ve moved forward since that time. You’ll show you’re honest, transparent and willing to make positive changes.
4. Negotiating Power
Whether it’s the terms of your car loan or your credit card’s interest rate, having a stellar credit history will provide you with the bargaining power you need to secure the terms you want.
When you have a high credit score, you’ll be the one calling the shots, and you’ll be able to choose the terms most advantageous to your financial circumstances.
Tip: If you’re negotiating car financing with a dealership, head to your local bank before you start the process. In many cases, a bank will give you better terms than what the dealership will initially offer. You can use the bank’s offer as extra ammo to get better terms and rates from the dealership. If the dealer won’t budge, then you’ve got the bank as back up.
5. Lease Housing Effortlessly
Landlords care just as much about your credit as a bank does. Just like a credit card lender, your future landlord will determine your trustworthiness by your credit history.
It doesn’t matter if you make a great salary or have a stash of money in the bank. If you’ve got bad info on your credit history, especially a history of late or missing payments, that’s a sign you may not be the most reliable tenant. Even if you’re able to rent with poor credit history, you may be required to put down an extra deposit or get a co-signer, which is expensive and a hassle.
By improving your credit score and showing your landlord that you take your personal finances seriously, your application is that much more likely to gain speedy approval. And in this competitive rental market, you’ll need every advantage you can get.
Tip: If your credit history is putting your dream home at risk, consider paying rent in advance (if you can afford it). This is just one way poor credit history can really cost you, but by paying for multiple months of rent at once, your future landlord may feel more comfortable signing that lease.
6. Cheaper Utility Services
Many utility companies will pull your credit report before they take you on as a customer. If your credit and payment history has taken a beating, the utility company may require you to pay a deposit on your service, which can cost as much as $270.
Considering most consumers also have to pay service connection fees and other charges, you could end up paying hundreds of dollars just to get your water running. Keeping your credit history clean shows the utility company you will be a reliable customer and in turn, the deposit fee will be waived.
Tip: Utility workers aren’t perfect and sometimes they make mistakes reading your meter. Make sure you compare the meter reading on your utility bill to what is actually on your meter. If your meter is lower than the number that’s being reported on your bill, it’s possible you’re being overcharged.
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