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Why YOU Need Credit

You hear a lot about credit scores and credit history. It seems like you can’t watch TV or listen to the radio without hearing credit scores mentioned. But do you know why your credit score is so important? Believe it or not, your credit score is probably more important than you realize.

Your credit score plays an important role in:

Borrowing Money: If you do not have any credit history, or if you have a poor credit score, you may not be able to borrow money in any form.

Interest Rates: The interest rates lenders charge is based on several factors; primarily your credit score, credit history, income, and debt to income ration (the amount of your monthly debt payments compared to your monthly income).

You credit score and credit history have a direct relation to the interest rates you will be charged by a lender, if they even offer to extend credit to you in the first place. A good credit score can result in lower interest rates which can save you thousands of dollars over the course of a loan.

Insurance Rates: Almost every insurance company runs a credit check when determining your insurance rates. The higher your credit score and the longer your credit history, the lower your rates will be. This applies to auto insurance as well as homeowner’s or renter’s insurance.

Employment: Many employers will perform background checks when making a hiring decision, many of which include a credit check. If your job deals with financial matters, sensitive information, or requires a security clearance , your credit score and credit history can have a direct impact on your ability to get hired.

Renting: If you rent a home or apartment, chances are your landlord did a background check and credit screening on you. If you have a bad credit score, or no credit history, you may have a hard time finding a landlord who will rent an apartment or a house to you.

Cell Phones: Yes, even cell phone companies do credit checks before they will sell you a cell phone plan. Cell phones require a monthly payment, and the cell phone providers want to know if it is worth entering into a contract with you. If you have a poor credit score, or no history, you may not be able to get a cell phone contract.

In our society, having a credit score and an established credit history is a necessity. If you do not have credit history, you are placing yourself at a financial and possibly professional disadvantage. Now is the best time to begin growing your credit history. The easiest way to do this is to take out a small loan and make regular payments. There is no need to borrow a lot of money to create credit history. Simply borrow an amount that is easy to pay back and make regular payments. Your credit score will increase in a few months time.

Patrick is the author of Cash Money Life, a blog about personal finance, career management, and self-improvement. He served in the United States Air Force, has traveled to over 35 countries, and is a fantasy baseball champion. He is an active lender at Prosper.


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6 Responses


smith | March 19th, 2008 at 12:39 am

Cell Phones: Yes, even cell phone companies do credit checks before they will sell you a cell phone plan. Cell phones require a monthly payment, and the cell phone providers want to know if it is worth entering into a contract with you. If you have a poor credit score, or no history, you may not be able to get a cell phone contract.

In our society, having a credit score and an established credit history is a necessity. If you do not have credit history, you are placing yourself at a financial and possibly professional disadvantage. Now is the best time to begin growing your credit history. The easiest way to do this is to take out a small loan and make regular payments. There is no need to borrow a lot of money to create credit history. Simply borrow an amount that is easy to pay back and make regular payments. Your credit score will increase in a few months time.


Al | April 2nd, 2008 at 7:39 pm

Did insurance companies and renters do credit checks 20 years ago?
1. Why can you not do anything without FICO being involved? Because the rising percentage of defaults on everything from credit cards to houses.
2. Why are there more defaults now than before? Because anyone with the slightest sign of a pulse can borrow to their eyeballs.
3. Why are creditors giving credit away so freely? So they can make up for losses from the rising percentage of defaults.
4. Why are there so many defaults? See #2.

Rinse, lather, repeat….

TMMOFTW


Calibarbb | April 7th, 2008 at 11:15 pm

defintly going to try that last paragraph…i have nooooo credit cards and i really want to improve my score

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