Money can be a pain to think about, but as you know, if you want to be something other than broke, you’ve got to work out some of the details of your financial life. Credit is one of those things that tends to give people trouble. Not only does it require that we live beneath our means in the present, it also has important ramifications for our future, many of which are outside of our control. We’ll talk below about how good credit gives you a discount on life, in more ways than one. Even if you know a little bit about credit, stick around. You might learn something about this powerful financial instrument that will change the way you spend and save. For those who need to learn about their credit scores now, this Credit Karma review will give you some helpful context.
- Good Credit Saves You Money Now, on Interest and Fees. If you have good credit at this precise moment, then you will do a lot better in the loan department than someone with bad credit. Here’s how that works. Let’s say you have good credit, based on a long credit history, living beneath your means, and always paying your bills on time. Now you want to buy a house. You have sufficient income, so the bank takes a look at your credit scores, which are in the upper 700’s. They decide to grant you a loan with very low interest. When you pay your first payment next month, your payment will be significantly lower than the payment of someone who got a mortgage loan with worse credit history.
- Good Credit Saves You Money Over Years. Building off of our example above, if you save money on interest on your mortgage loan, you’ll also be saving for as long as you pay off that loan. You might save $100 on that first payment, compared to the person with the higher interest. Imagine how much you’ll save over the lifetime of that loan. $1200 a year for 30 years is $36000, and that’s on the low end of savings you could incur just by getting good interest rates based on your solid credit history. Remember, these metrics apply to every loan you’ll get for the rest of your life, so this number can be a lot, lot higher.
- Good Credit Can Influence Earnings. It’s not legal in most places to make hiring decisions about a potential employee, based on their credit history or credit score. This doesn’t mean it doesn’t happen. If you’re applying for a job, it’s not outside of the realm of possibility that the determining factor between you and another candidate will be your credit score. Better to have as high a credit score as possible.
In the end, a good credit history and a high credit score are essential to saving money over the long term. Credit is important, and it’s not even that hard to understand. While you’re learning the basics of good credit practices, try to spend and save responsibly in the meantime. Living beneath your means is a great way to boost credit.