16% of Americans have bad credit. If you’re in that category, you’re not alone.
Despite that, it’s important to work on it. Credit scores can affect many things in life and you’ll find everything involving finances much easier if you have a good credit score to back you up through your choices and applications.
So why is it important to have a good credit score? Here are all of the reasons to consider.
Cell Phone Contracts
When it comes to taking out a cell phone contract, it usually involves paying a certain amount for a period of time to pay off the phone and get a certain allowance each month.
Because it involves paying off the phone, it functions as something like a loan — which means the cell phone company is going to check your credit score before they grant you the contract.
There are ways to get around this, such as buying a phone outright or using a prepaid contract, but this will often cost you more in the long run and won’t do anything to actually improve your score.
Having a good one means that when the cell phone company runs a credit score check, they’ll be happy to give you the best deal. You can then choose to sell the phone at the end of the contract if you want, since it’s now yours and paid off.
A bad credit score can seriously limit your housing options.
Taking out a mortgage requires a good credit score so the lender has full confidence in you. With a low credit score, you’re very unlikely to be able to buy a house as it’s a huge factor that goes into it.
Even renting can prove difficult. Landlords will check your credit score and may be reluctant to rent you property if it shows to them that you may not pay on time.
While you’ll likely be able to find somewhere eventually, your options will prove very limited as you’ll have to go with someone who doesn’t mind your bad credit score or isn’t checking them at all. These likely won’t be the best apartments or houses.
When applying for a credit card or a loan, you’ll notice that the lender will ask you many questions such as:
- What’s your income?
- Where do you get this income from?
- Do you rent or own a house?
However, the answers to these won’t actually matter if you have a bad credit score.
There are some credit cards built to facilitate credit repair, including secured credit cards, but these involve paying for the card. You’ll give them, say, $500 to get a $500 card and this is refunded when the card is closed. That way, you aren’t actually borrowing money but using your own to improve your score.
As for a credit card or loan in terms of actually borrowing money, it will be rejected if you have a bad credit score.
Higher Credit Limits
Even if you find a credit card that’s willing to accept your poor credit score, you’ll find that the limit is very low — likely around a few hundred dollars at best.
If you have a good credit score, you’ll be able to get a limit that’s thousands of dollars and will quickly increase as you make payments on time. This can make a huge difference as often, a few hundred dollars isn’t really worth having on a credit card at all.
Still, if you have a bad credit score, that’s what you have to do until you can build it up a little more. You’ll notice when you manage to improve it to a good one that your applications are accepted much more quickly and the limits are noticeably higher.
Homeowners and auto insurance always come with rates that rise depending on how much of a risk you are. For example, if you have more at-fault accidents than the average driver, you’ll notice your car insurance rates are higher.
Another factor that goes into this is how likely you are to make the insurance payments on time. People with a bad credit score will, unfortunately, have to pay more for insurance.
This can seem cruel, as people who are already financially struggling then have to pay more money to keep afloat, but it’s how the system works and another huge reason having a good credit score is an invaluable benefit to your life.
Security Deposits on Utilities
When you start paying for utilities, if you have a good credit score, you may not need to hand over anything except the monthly or yearly payment.
If you have a bad one, you may not be denied, but you may be asked for a security deposit. The provider will want to make sure they have the money they need to provide a service and can take from this if you don’t make a payment on time.
A bad credit score suggests, to them, that you may not.
Why Is It Important to Have a Good Credit Score?
So why is it important to have a good credit score? There are many reasons, including getting better rates on insurance, getting loan applications accepted, and having more housing options.
The credit score system can seem like an unfair one but regardless of that, having a good credit score will improve your life in ways you might never even have realized you needed.
If you need help repairing your credit in a way that’s manageable, contact us today to see what we can do.