Being financially literate is an important task that every independent adult should understand. However, if there is one specific financial goal that one should aspire to reach, it is to have good credit. Having good credit will have an important ripple effect on one’s ability to finance important amenities one may need going forward. This is in addition to how it can affect other aspects of one’s life. To understand why credit really matters, one must understand what credit really is.
What is Credit?
Whether you have good or bad credit depends on your credit score. Your credit score is a number given to you by the “big 3” credit bureaus. This three-digit number is an indicator of how likely you are to repay a debt. This is incredibly important to banks and lenders because your credit score determines how likely you are to pay back money given to you. If your credit score is high, you have proven yourself to be a trustworthy candidate to repay debts. If your credit score is low, you are highly unlikely to be approved for any loans or any means of financial assistance. So why do these credit scores matter?
Purchasing a Home
When adults choose to live on their own, one of the biggest decisions they will have to make is whether they want to save up to make a down payment for a home or live in an apartment complex. For those who choose the former, having good credit is the first step in getting a favorable mortgage rate. Typically, a credit score of at least 740 or higher is what is required to get “good” terms on mortgage that you can pay over a fixed period of time, especially for conventional loans. If you are currently crippled with debt, you can consult experts in the industry such as Graylock Advisors to assist.
Purchasing a Car
Getting a vehicle at a good price is also contingent upon having good credit. Getting a good rate on a car is similar to the process of getting a good mortgage rate on a house. If you have a higher credit score, you will get a more favorable rate because your credit history shows that you pay debts off on time. If your credit score is lower, not only will your loan application most likely be rejected on the spot, but your interest rate will likely be significantly higher if you do get financing.
In addition, not only will the rates on the car you purchase be directly affected, but the insurance will likely take a hit a well. Those with poor credit can pay nearly $700 per year more in insurance costs if their credit score is not high enough. In addition, most states allow insurance companies to weigh credit scores, which is all the more reason to ensure that the score is adequately high.
Getting a Job
You may not realize it, but having good credit can also affect your ability to get a job. This may be confusing to some because people do not associate the ability to pay off debt with qualifications for employment. However, if you are applying for a job in which you will have frequent access to money or sensitive customer data, a background check may be implemented. This background check will typically include your credit score. Those who work federal government jobs are those who are most often checked for good credit scores.
However, while some employers require a credit check, employers are required by the law to get your consent in order to implement it. So, if you happen to find yourself in this situation, ensure that your credit reports are up to date and that there are no errors. Also, if you happen to be having issues with debt that can affect your credit score, industry experts such as Graylock Advisors may be able to provide you with necessary assistance.
Beginning a Small Business
Having good credit will also affect your ability to get the financing needed to get a new business off the ground. If you are an aspiring entrepreneur, there will be many things that you require in order to build a successful empire. However, arguably the most important aspect of building a business is capital. You will get rejected for business loans if you cannot provide proof that you are a trustworthy candidate. If you are not able to get the proper financing, your business venture will be a relatively short-lived one.
As you can see, having good credit matters in more ways than one. You can start to build credit by paying off bills on time and living within your means. This will make your life significantly less stressful.