Why credit matters

How good and bad credit can impact your life

Want to buy a house or a car? You need decent credit to get a good interest rate and loan. Are you interested in getting a credit card? A good credit rating is key. Looking to pay for college? You or your parents might need to use credit to pay for tuition.

Credit can impact your life in many ways. If you have poor credit or no credit, big purchases may be difficult to make. However, if you make payments on time and keep your balances low, credit can help you thrive.

How credit impacts your short and long-term financial goals

Most people wouldn't be able to make larger purchases like homes or cars if they had to pay for them all at once. By spreading out payments on a loan over a longer time period, you can use credit to bring short-term and long-term financial goals within reach. Keep in mind that your credit health can impact both your short and long-term goals.

Short-term

• Opening a credit card
• Obtaining a short-term loan
• Buying insurance
• Setting up cell phone or utility service

Long-term

• Purchasing a home
• Buying a car
• Securing a loan to open a business
• Paying for college

Lending isn't the only area where credit impacts you. Landlords typically check your credit before agreeing to rent an apartment or determining the amount of a security deposit. Before opening your account and setting rates, service providers, such as cell phone, insurance, and utility companies, will check your credit to find out if you have a history of paying your bills on time.

In some cases, potential employers may run a credit check before they hire you. Although your credit isn't an indicator of your job performance, it can show that you're reliable.

Now, that we've covered the basics of why credit matters, let's take a look at the benefits and drawbacks of good and bad credit.

Can good credit save money?

Over time, having good credit can save you money and having bad credit can cost you money. These are two of the many reasons it can be so important to monitor your credit and practice good financial habits. 

Benefits of good credit

When you take certain steps to build your credit, it can come with a number of benefits, including:

• Access to loans
• Lower interest rates when you borrow
• Better insurance rates
• Greater ease renting an apartment
• Better terms on cell phone plans
• Credit cards with better benefits

By reviewing your credit report regularly and making on-time payments to your lenders, you can help keep your credit in good standing.

Drawbacks of bad credit

Bad credit may affect your life just as much as good credit. Missed payments, accounts in collection, and high credit card balances may all count as negative marks on your credit.

With bad credit, your application to secure a mortgage, car loan, or credit card could be denied. Even if you're approved, you could end up paying higher interest rates and fees.

Bad credit can keep you from saving and planning for the future by making the goods and services you need now more expensive. Your credit report could also end up in the hands of a potential landlord who could deny your rental application or an employer who might not hire you for a job.

As you can see, credit can have a significant impact on your life. It can mean the difference between achieving your goals or keeping them out of reach.

Key takeaways

• Credit is a measure of your financial responsibility and can help you access money, goods, and services when you need them.
• You typically need good credit to get a credit card or access loans for large purchases. It also makes it easier to live and work where you want.
• Having bad credit can keep your goals out of reach by making it more difficult and expensive to access loans and services.