10 Reasons Good Credit Can Change Your Life

Your credit score is a number that influences many of your financial decisions, but why is it so important? Aside from taking out a loan or getting approved for a credit card, your credit history affects your life in many other ways. While it is possible to live without taking out a credit card or loan, not having any credit history to show can slow down or stop some very important milestones in your life.

Below, we list the top ten reasons you should aim to maintain a good credit score:

1. Renting A House Or Apartment Will Be Much Easier

When you are looking to rent an apartment or house, landlords check your credit history to review your payment history and make sure you don’t have a history of late payments, delinquencies, or bankruptcies.

In many cases, landlords and management prefer to rent to consumers with a higher credit score if they are housed in a "desirable" neighborhood.

If you have bad or no credit, it'll be much harder to find a home without having to put down a hefty deposit.

Beyond being approved for your application, your credit score lets your landlord know if you need to put down a security deposit or have a cosigner. With bad credit, this deposit can run up to hundreds of dollars and you may be required to pay a month’s rent in advance. In the case you have limited credit, you can ask a previous landlord or manager to write a letter of reference to lower your deposit.

Be careful not to apply at too many places, since every time a potential landlord or property manager checks your credit history, it places an inquiry on your credit report. However, this does depend on the credit scoring model, so multiple inquiries may be counted as just one.

If you fail to pay your rent and you are evicted, a landlord or property manager may send unpaid bills to a debt collector, which damages your credit score and remains on your credit report for up to seven years.

2. Your Mortgage Payments Will Be Lower

Along those same lines, homeowners with good credit are usually the ones that receive the desired low interest rates on home mortgages.

3. You Will Receive A Lower Down Payment When You Buy A Cell Phone

A smartphone is an important part of everyday life. If you are unable to afford it up front, some retailers allow you to pay it back with small monthly installments. This requires a credit check and in the case you have a low score, you'll be required to pay a down payment.

In the case you have bad or no credit, you can choose a pre-paid phone or family plan, but even these can result in a credit check since you can run up charges for extra data usage. If your carrier allows, you may also have the option of putting a security deposit for a contract. The good news is, you may be able to get it back after a couple of years of on-time payments.

Some companies also authorize a hard credit check (which damages your credit slightly) to look at your credit history and payments before deciding whether or not to give you a plan.

4. Your Utility Bills Will Be Lower

Before providing any services, utility companies perform a credit check on consumers to ensure they are reliable. If you have a low score, you may have to pay a deposit that equals a few months of service. Electricity and water are similar to loans because you pay for them after the services since not paying for these services on time can damage your credit score.

If you don’t have any credit history, you may already have what is called a Utility Score, a type of credit score used by utility companies. If you are new to paying utilities, you can open a new account with a co-signer, which lessens your chance of having to pay a deposit.

5. Your Insurance Premium Depends On It

Your credit history is important to insurance companies because they want to be sure you will pay on time. Consumers with lower credit scores are statistically more likely to file claims against the company and have a smaller income and savings.

With bad credit, you will have a harder time being approved and you may end up paying higher rates for auto, homeowners, and renters insurance.

6. It Can Help You Get Hired For A Job

Many employers (especially those in the financial, security, and high-risk businesses) check credit scores to screen potential employees in regards to reliability and responsibility. Although these practices are outlawed in a few states like Connecticut and Illinois, 1 in 7 applicants are turned away from a job because of poor credit.

7. It Will Be Easier To Qualify For Loans

The higher your credit score, the easier it will be to take out personal loans, auto loans, or a mortgage. Although there are personal loans available if you have bad credit, a good credit score allows you to qualify for much lower interest rates on a loan.

8. Your Will Receive Lower Interest Rates On Loans

If you have good or excellent credit, you will score much lower interest rates on personal loans.

A bad credit score results in higher rates for any kind of loan you take out and you may find it difficult to be approved by lenders. Even if you are approved, you may find yourself dealing with restrictive terms.

As a general rule, be wary of applying for too many credit lines and making multiple inquiries since this can damage your score. (However, with some credit score models, multiple inquiries in a single time frame only count as one inquiry.)

9. You Will Qualify For Better Credit Cards

The types of credit cards you qualify for are highly dependent on your credit score and the issuer. Credit cards that have rewards generally require a higher credit score, but entry level cards and secured credit cards (which require a deposit) are available for customers with bad credit.

10. Your Relationships Are Impacted By Your Credit Score

If you and your partner are looking to take out a homeowner’s loan or auto loan, lenders check both credit histories to see if you qualify or if you are able to afford large investments like a home or car. If one of you has a good score while the other has a low score, you will still have a higher down payment or interest rate. Additionally, if you both share a joint credit card and you miss a payment, both of your credit scores suffer.

I Want To Improve My Credit. Where Can I Go From Here?

Your credit score is an essential part of your financial decisions. If you want to improve it, you can take the following steps to get you back on track:

• Check your credit score: The first step in improving your situation is knowing where you stand. You can use a credit monitoring service to keep track of your credit score and get automated protection from identity theft.

• Build your credit: If you have no credit history, you can start building it by applying for a credit card. Be sure to pay it off on time, keep a low monthly balance, and use less than 30% of your credit line. You may also consider taking out a secured credit card or a credit-builder loan, such as one from Self Lender.
• Repair your credit: Any discrepancies in your credit history can be disputed by a reputable credit repair service.

What are some benefits of a good credit score?

A good credit score can help you with the following:

• Renting a house or apartment (without putting down a hefty deposit)
• Your mortgage payments will be lower
• You will receive a lower down payment when you purchase a cell phone
• Your utility bills will be lower
• Your insurance premiums depend on it
• Potential employers may look at your credit history to determine reliability
• It will be easier to qualify for loans
• You will receive lower rates on loans
• You will qualify for better credit cards

What factors make up my credit score?

Your FICO® is made up of five factors:

• Payment history: 35%
• Credit utilization: 30%
• Credit age: 15%
• New credit: 15%
• Types of credit: 10%

What negative items appear on my credit report?

Your credit reports can contain both positive and negative history. Items that negatively impact your credit include:

• Bankruptcies
• Charge-offs
• Collections
• Credit inquiries
• Foreclosures
• Judgments
• Late payments
• Loan defaults
• Past due payments
• Public records
• Repossessions
• Tax liens

How can I improve my credit?

• Consider credit repair and contact a credit repair service
• Always pay your bills on time
• Deal with past due accounts
• Reduce your credit utilization
• Keep old credit accounts open
• Open new credit (but avoid applying for too much new credit)
• Monitor your credit

About The Author

Bryan Huynh

Product Tester & Writer

Bryan Huynh, a committed Product Tester and Writer, ensures that you are well-informed, guiding you in discovering and comparing top-rated financial services, including personal loans, business loans, credit repair, and tax relief.

Articles by Bryan Huynh

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