If you’ve never borrowed a penny in your life you may be wondering what the point of credit actually is – after all, you shouldn’t spend above your means, right? Well, while this is partially true, having a credit rating can actually come in extremely useful, especially if you want to apply for a loan or get a mortgage on a house, so let’s take a closer look at the good and bad of credit and how to keep yours looking healthy.
The upside of having credit:
Believe it or not, we live in a rather strange world where not having a credit rating can actually be a hindrance rather than a help. Sure, funding your own lifestyle without sourcing funds elsewhere is highly admirable, but a credit scores makes it easier to…
Secure low insurance premiums
Insurance companies like to know that you’re a low risk before offering you the best rates and they find this out by running a credit check. If you’ve never borrowed money there will be no track history of how you pay your bills, making it more difficult for insurance firms to give you low premiums as they don’t know for sure how reliable you’ll be.
Rent or buy properties
Mortgage lenders and landlords alike also use credit scores as a benchmark to work out whether you’re a suitable candidate for a loan or rental agreement. They want to assess your financial history to ensure you’ll be able to pay rent or mortgage payments on time and if you’ve no credit score this becomes somewhat tricky.
Land the job of your dreams
Unbeknown to many employees, top companies often run credit checks on suitable candidates to see how trustworthy and reliable the people are who they want to hire. If you’ve a sound record of making payments on time it can greatly increase your chance of landing the job of your dreams – so how do you get a credit score if you’ve never had one?
Well, one thing you may want to consider is applying for a low interest rate credit card and using it to make regular payments – say for groceries or fuel. Pay the amount you own back in full each month and not only will you build a strong credit rating for yourself but you won’t be getting into unnecessary debt, which is something many people in a sound financial state worry about.
The downside of credit:
As you can see, credit isn’t all bad. In fact, it’s almost necessary if you want to take important steps in life such as renting or buying a property. Before you borrow money, however, it’s essential to be aware of the downside of credit such as…
Getting into debt
If you fail to make repayments on time or spend well above your means without working out how much you can realistically afford each month, you could fall into debt quickly. Having disposable cash at your fingertips can trigger spending habits you’ve never had before, so be extremely careful if you do get a loan, store card, credit card and such like.
High interest rates
Beware of high interest rates. These can be crippling and make it harder than ever to pay even a small amount of money back. Thankfully, many companies these days keep their interest prices low, especially if you’re a new customer – but make sure you read renewed contracts to ensure rates don’t change.
The good side of credit often outweighs the bad, but it’s all about being as sensible as possible.