Many people, especially young adults, don’t realize the significance (and thus discount the importance) of having excellent credit. This can be a problem for many reasons, many of which might not become apparent right away. Simply put, there are so many aspects of your life that depend on those three little numbers that it simply doesn’t make sense to ignore them.
Even for people who realize that their credit can have an effect on their ability to get a mortgage these next 4 reasons may be a surprise. We figured, rather than get surprised after you’ve messed up your credit, we’ll surprise you now so that you treat your credit score with the respect and love that it deserves.
Reason number 1 involves insurance. We all need it for our homes, our automobiles and our health but, in quite a few states, your credit history will not only determine whether you can be insured with some companies but how much your premiums will be. The reason for this is that there have been several studies done showing a correlation between someone with a low credit score being a higher risk for insurance. Basically, the lower your credit score the more you’re going to pay for those insurance premiums.
Reason number 2 may surprise you quite a bit. In the United States, federal law permits any employer from investigating the credit score of any possible employee before they hire. That’s right; to get many job you’ll need to submit to a credit check. You can legally refuse to let them do that when they ask you for your consent, but you might as well not even apply because in most cases your refusal will keep you from getting the job anyway. (Kind of a Catch 22, yes?)
The reason that employers care about your credit history is that, in many industries, people with low credit scores have been shown to have a higher incidence of fraudulent activities. (For some reason that’s a big no-no.) Besides that, you can well understand that a person with a very low credit score might seem irresponsible, something that most companies definitely are not looking for.
Reason number 3 will definitely affect entrepreneurs because, if you have low credit, the chance of getting a startup loan for your new company are going to be much lower. If you look at this from the bank’s point of view it’s quite logical that they wouldn’t want to lend money to someone who already has a history of not being able to manage their money. Keep your credit score high and, when that excellent idea finally comes, you’ll be able to get the money you need to let the world know about it.
Our final reason (number 4 for those keeping track) has to do with getting private student loans. While there are certainly federally subsidized loans like Stafford, PLUS and Perkins that do not require a credit check, for private loans you’ll definitely need a clean credit bill of health. The reason is simple; the lower your credit score, the higher your interest rates will be. If it’s too low you may not be able to get a private loan at all.
When all is said and done, it’s never too late to turn your credit around if you’ve made a mess out of it. It might take some time and effort but getting that credit score backup is definitely well worth it. Of course, if you’re just starting out and you haven’t made any major mistakes, you now have four more reasons to take care of your credit score and your financial situation in general.