If you are planning to be debt-free and pay for everything with cash, is there even a need to be worried about your credit score?
Well, the answer in the past from many experts has been “no,” there is no need to worry about building up your credit score and playing the credit game to gain better credit is unnecessary because your goal should not being building credit just to get more credit.
Now we would agree and disagree with the above statement. We should have a goal of paying cash for everything, therefore having no need to be concerned with building a good credit history or score.
We will talk about how this relates to buying a home later (one of the only things that a loan may be okay on). But for now, we want to specifically talk about why you should be concerned with your credit score and history, even if you do try and pay cash for everything and have no need for credit.
In today’s day and age, your credit history and score is used for so much more than financing, therefore we want to share 7 important reasons to have good credit.
1. Job Searching
The biggest reason to be concerned with your score is for job purposes. Many jobs today, especially professional jobs, require a credit check before you are officially hired.
They check your credit as it is an “unbiased” assessment of your character. It is a judgement about your professionalism and your level of responsibility in life as that is often translated into work life. You may have all of the necessary and needed skills for a good job, but if your credit is in the toilet, you may lose your opportunity. This is the number one reason why a good credit score and history is important.
2. Security Clearances for Jobs
Along with possibly need good credit for a job of any sort in the first place is the possibility of needing a security clearance with a current or future job. If you work for any government agency or contractor that works with the government, the need for a security clearance is very probable at any time in your career.
There are many different levels of security clearances, but even the lower ones usually require a credit check and a credit score minimum to obtain your security clearance.
The reason why might be obvious, but as a reminder, your credit history is a character history.
3. Jobs in the Financial Industry
Similar to #2, if you are getting a job in banking, investing or any other financial institution or position, you will almost always have a credit check. Again, this is because it is a character history, but someone that is also “financially unstable” looking for a financial job creates a higher fraud risk. The credit checks with these jobs often dive in deeper than just any job that requires a credit check. The requirements or standards will often be higher as well.
You might know how ethical and moral you would be in a banking job, for example, but your future employer does not. So in this case, not only is it for character purposes, but also whether you are a liability risk to your employer.
4. Discounts for Services
In addition, credit is checked to determine rates and discounts for services. These are the monthly bills that you don’t get financing for, but your credit will determine many factors on rates and discounts. Often times, many services will categorize consumers into different rate groups. The most financially stable get the best rates for these services.
If your credit is in the toilet, it can often mean not obtaining this service at all, which either leaves you out of options entirely, or a much more expensive service to make up for the lack of financial responsibility.
What types of services are we talking about? Well many services, but we will list the most common, but know that this is not a comprehensive list as it would be nearly impossible for us to identify every service that requires a credit check. 🙂
This is most common for:
- Cell phone service
- Land line phone service
- Cable television (but we would recommend cutting this expense and going with these alternatives)
- Internet service
- Savings accounts (depending on the bank and services included with your savings accounts)
5. Discounted Insurance Rates
Many insurance companies these days will check your credit to determine what rate category you fall into. Insurance companies reward responsible consumers by lowering their rates. A responsible consumer is the most sought after customer and so insurance companies offer the lowest and most competitive rates.
You see, a responsible consumer financially often equates to responsible in life. Responsible in life means that the probability of getting into a car accident, having a homeowners claim, etc. is lower. You are less of a risk for a claim and more of an asset to them than a liability.
If you want to learn more about saving money on insurance, check out the previous article on Insurance Savings…but note that good credit is one factor. 🙂
6. Better Home Mortgage Rates
We would love to be able to realistically encourage EVERYONE to buy a home with cash. But we know that this is not an easy process, nor a fast process. We are still paying off our mortgage and so even though we paid of $100k of consumer debt in a short time period, paying cash for a house while still trying to live is hard.
We’ve often said that you may or may not be able to do it, but think generationally – can you encourage your kids to plan and prepare for this in life?
Well, since we know that this is a lifelong process unless you hit a gold mine or have a successful business overnight, credit is important for those home mortgage rates – both buying and refinancing.
The goal of any homeowner should be to get the best rates, apply more cash to principle and get it paid off fast and much shorter than the 30 years! The lower the interest rate, the quicker you can pay it off.
Good credit is to thank for one of the big reasons for a great mortgage rate for purchasing or refinancing.
By the way, refinancing is a good option under certain conditions. So even if you aren’t planning to move anytime soon – a better refinance can play a huge role in an overall better financial situation.
7. Business Loan Rates
Finally, one of the only things that one may need credit for is for a business loan. There are many factors to consider when going into debt for a business and it needs to be thoroughly thought out and a great business plan in place. But if you decide a loan is needed, then a better credit score gives you better financing for many types of business loans (and depending on how your business is set up).
And as everyone knows, a lower/better interest rate means more profits for your business!
With these 7 reasons, anyone should strive to develop better credit even for the non-debt purposes. It’s not hard to repair and rebuild credit, even for the debt-free. We suggest you join the free 52-Week Take Back Your Finances Challenge, which will also take you through credit repair among many other important areas to improve your finances.