Having good credit can help you make the most of the money you have. You need a good credit score to qualify for a car loan, mortgage, and credit card. While you may still qualify with a lower score, you may more interest on the money you borrow.
For this reason, it pays to spend some time learning about credit and how to keep your credit file in great shape.
What if you have no credit?
It’s possible to have a credit file that’s so thin that you don’t even have a credit score. It doesn’t matter how old you are or if you’ve paid all of your bills on time, if you haven’t used credit in the past seven years, your file may be empty.
Low-cost loans and rewards credit cards often aren’t available to people without a credit score. It may be harder to get a cell phone plan, and you may have to pay a deposit when you initiate utility services for your home or apartment.
The FICO scoring model requires at least one active account that was updated by the lender within the past six months. Even if you only use one credit card and pay it off each month, you’ll keep your score in play.
How credit can help you get the things you want
A healthy credit score gives you access to a few useful financial products. The better your score, then the better rates you can qualify for on credit cards, auto loans, and mortgages. If your score is lower, you may still have options, but you may not qualify for the best rates. It may take months to see your score improve, even if you make every payment on time each month.
In the long run, it’s a good idea to take the extra time to improve your credit score before borrowing money for a big purchase like a house or a car. If you can pay down your balances and establish a history of responsible credit use, you’ll save money in the form of lower interest rates on loans.
Your credit score may have an impact on your bills
Insurance rates sometimes use credit scores as one factor in calculating what you’ll pay. When you shop for car insurance, renter’s insurance, or life insurance, your credit score is one way the company evaluates your risk profile. If your credit is poor, you may pay a higher rate for insurance coverage.
Maintaining some activity in your credit file and using that credit responsibly will open doors to better financial opportunities. When it’s time to buy a home, refinance your mortgage for a better rate, get a new car, or start a business, you’ll have access to the lowest interest rates and best terms if your credit score is solid.
For more great information on all things credit-related, head to our 'Basics of Credit' reference page.