5 Reasons To Care About Your Credit Score
Published May 9, 2016 | Updated May 12, 2016
By Laura Mohammad
After the Great Recession, there was an understandable and online movement afoot to get out of debt, eschew credit cards and even "go off the grid."
Consumers had been burned by high student debt, fast and loose mortgage rules, and out-of-control credit card debt. The result? Some bloggers advised readers to cut up their credit cards, live simply and not worry about their credit scores.
However, for most of us, credit scores matter very much, even if we don't know why. Unless you are living in a tiny house on Oregon farmland that is hooked up to propane and you plan to bike everywhere, you need to care very much about your FICO score, the scoring model most lenders track to decide if you are creditworthy.
Here are five reasons why your credit score should matter to you.
Better Loan Rates
Kudos to you if you are paying down that student debt and paying off those credit card bills. You are actually improving your score with every on-time payment. But why should that matter to you? There will come a time when you need a new ride or you want to get married or you even want to buy a house.
When that day comes, you will likely need a large sum of cash that most of us don't have on-hand. If you have a credit card that you are paying in full and on time each month, lenders will love you. They'll love you so much that they'll give you a great loan rate, one that will actually lower your monthly payment, sometimes significantly.
But to enjoy those great rates, you'll need to have shown that you are creditworthy. The easiest way to do that is with a credit card you pay in full each month, but previous credit-builder loans or personal loans are helpful as well.
A Better Apartment
Maybe you don't want to incur major debt by way of a mortgage, but you aren't prepared to live on Oregon farmland either. That means you need to rent.
Increasingly, landlords look at credit scores to decide if a renter is trustworthy. The thinking is that if you have a good score (think over 700 on a scale of 300-850), you will take care of the landlord's investment and pay on time. So, if you want poolside wifi, granite countertops and a dog park, start caring about your score. (You can check your FICO score for about $20 each at MyFICO.com.)
Another reason why you should care: Experian, one of the three major credit bureaus, became the first to report on-time rent payment history.
Better Auto Insurance Premiums
Although insurance companies typically look at different credit scores and reports that follow different models, they are looking at similar data. They want to make sure you pay your bills and can manage credit, partly because they have found that people with better scores and credit reports tend to make fewer claims. That can translate into better insurance premiums for you, although insurance companies also look at your driving history and any claims on your record before making a decision.
So, unless you plan to bike everywhere, you are going to care about what insurance companies find on your insurance score.
New Deposit On Utilities
Not only will utility companies report your bad payment behavior to the three major credit bureaus (Experian, TransUnion and Equifax), if you have shaky credit, you may have difficulty getting service without a deposit or what is called a ”letter of guarantee,” in which another person commits to paying your bill if you don't.
Bypass the hassle by having a great credit report, and therefore, a strong credit score. Here's how it works: The credit bureaus collect data from lenders that they compile into your credit reports (you can get your credit reports for free once a year at AnnualCreditReport.com). Then, FICO uses that information to compile your credit score. By making sure you are current on all of your accounts, you will avoid having to pay a deposit and avoid having bad marks on your reports because of late utility bills.
Your Dream Job
While potential employers can't check your credit scores, they might check your credit reports.
Why do they care? According to a 2012 Society for Human Resource Management survey, almost half of employers check potential employees' credit reports, primarily to decrease the likelihood of theft, embezzlement and reduce legal liability for negligent hiring.
That said, an employer can't check your report without your approval. Also, some states limit employers' use of credit information in employment, according to the National Conference of State Legislatures. Still, future job prospects are a big reason to make sure your credit reports (and scores) are in good shape.
Sure, it's possible to function in America without a great credit score, but it's very difficult. Most of us need utilities, a job, an apartment or home, and auto insurance to live the life we want to live.
Now you know why you should care about your credit score!
Laura Mohammad is the editor of PersonalLoanReports.com, which advises readers on credit, good borrowing habits and how to get the best deal from your lender.