Establishing Credit: A Comprehensive Timeline and Why It's Crucial

profile Brett Holzhauer  |  December 6, 2023

Your credit score might not be something you think about every day, but it has a significant impact on your financial life. In fact, many Americans don’t even know their credit score or how to even check their current score. But this singular number can have a significant impact on your financial wellbeing and opportunities.

Whether you're applying for a credit card, mortgage, car loan, or even a job, your credit score is often one of the key factors that lenders, landlords and employers consider. In this blog post, we'll explore why it's essential to build and maintain a good credit score.

Access to the best financial opportunities

One of the foundational pieces of achieving financial freedom is having access to low-cost financial products. This could be as simple as a fee-free checking account, or even a low interest mortgage. To obtain those low cost products, you must have a high credit score to show lenders and financial institutions that you’re able to repay your debts in a timely manner.

Lower interest rates on loans

A strong credit score demonstrates to lenders that you’re a responsible borrower. As a result, they are more willing to offer you credit at lower interest rates. This means that you'll pay less in interest over the life of a loan, which can lead to substantial savings. Even a small reduction in your interest rate can make a significant difference in your monthly payments and overall financial health.

Easier approval for housing options

If you're looking to rent, your credit score can also play a crucial role. Landlords often check the credit histories of prospective tenants to assess their financial responsibility. A higher credit score can make it easier to secure a rental property, while a low score may result in denials or require a higher security deposit.

If you’re attempting to purchase a home, it’s likely that you will need to apply for a mortgage. The lender will run your credit to ensure that you have a positive track record of repaying your debts.

Potential employment opportunities

In some industries, employers may check your credit history as part of the hiring process. They may use it as a tool to assess your trustworthiness and financial responsibility. A poor credit score might affect your chances of landing a job, especially in positions that involve handling finances or sensitive information. Building a good credit history can enhance your career prospects.

Better insurance rates

You might be surprised to learn that your credit score can also influence your insurance premiums. Many insurance companies use credit-based insurance scores to assess risk. A higher credit score is often associated with lower insurance rates, potentially saving you hundreds of dollars each year on auto, home, or life insurance.

Negotiating power when it comes to lending

A strong credit score (like having over an 800 credit score) gives you negotiating power in financial transactions. Whether you're applying for a loan, negotiating the terms of a credit card, or seeking better rates on existing credit, having good credit makes it easier to secure favorable terms. Lenders are more likely to work with you and offer better deals when you have a history of responsible credit management.

The bottom line

Your credit score is a valuable asset in your financial life, and building and maintaining it is essential. It impacts your ability to access credit, the interest rates you'll pay, your housing options, job prospects, insurance rates, and even your overall financial security. By actively working to improve and maintain your credit score, you're not only investing in your financial future but also gaining greater control over your financial well-being. Don't underestimate the importance of your credit score, as it can make a significant difference in your financial success and quality of life.

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