Why You Need Good Credit

You've probably heard all about how important credit is to a person's financial future. Unfortunately, many people don't understand why good credit is essential.

Think of building credit as a way of opening doors. Each time you gain a few points in your credit score, a new door opens. If you lose points because of poor financial habits, those same doors slam shut without warning. And the longer your credit history is nurtured, the more reliable those open doors become. The following are some of the reasons why good credit is important, and why you should make building credit a priority.

Each time you gain a few points in your credit score, a new door opens. If you lose points because of poor financial habits, those same doors slam shut

Transportation

If you don't have good credit, buying a car becomes much more difficult, unless you have the cash to pay for it all at once. Most people must secure financing to afford it. They put down a certain amount of money (10 percent, for example) and pay the rest in monthly installments. If you don't have a good credit history, financing might not be available at all. Although bad credit auto loans exist, you might wind up paying far more in interest over the course of the loan than you would have if your credit had been better. Obviously, this is an incentive to keep building credit.

Housing

If you want to buy a home, your lenders will research your credit history and determine whether you are a high-risk or low-risk customer. If you pose too much of a risk, you will be denied a loan altogether. These days, the same goes for renting. If you want to rent an apartment, the property management company will likely run your credit history prior to approving your application. If you don't have good credit, you might be denied the apartment, or you might have to pay a larger security deposit.

Employment

Employers have to protect themselves just like banks and loan officers do. If you don't have a good credit history, prospective employers will probably find out about it and may even choose another candidate. If you have poor credit, employers might assume that you are a higher risk for theft because you don't know how to manage money. Unfortunately, most employers now require a credit history check as well as a background check. Work on building credit to avoid losing good job prospects.

Loans

We all face financial hardships at one time or another, which is why consumers should start building credit during good times. If you lose your job, for example, you might need a short-term loan to keep you on your feet, or you might want a credit card to help pay your bills. If you don't have good credit, those loans will not be available. The same goes for wanting to start a business or conduct home improvements on your house.

Building a good credit history is essential to a happy financial future. Start working toward good credit by paying your bills on time and managing your finances carefully.

Steve Thompson