Avoiding Debt? You Still Need Good Credit

You probably know that if you plan to borrow money, you'll only get the best terms if you have good credit. If you want to save money on interest, and enjoy the best possible terms, you need to show the lender that you are responsible, and that there is a good chance that you will repay your debts. But what if you have been avoiding debt?

There many people who save up to make purchases. They save up for car purchases to avoid auto loans. There are those who prefer to invest their money instead of getting a mortgage. Or, if you already have mortgage, you might not see the sense in the need to borrow for anything else. Cash often works just fine when making most purchases. Why do you need to worry about your credit when you won't be borrowing?

Whether or not you agree with the trend, the truth is that lenders aren't the only people interested in looking at your credit situation. You need good credit if you expect to save money in other ways, or have access to opportunities that may not necessarily be directly connected with getting a loan.

Insurance, Renting, Cell Phones, and Jobs

Your financial habits are of immense interest to a number of people that you might not realize. Some banks check your credit before allowing you to open certain types of accounts. Even if a full credit check isn't done, a ChexSystems check might be used to look at some of your consumer behavior. You can be denied a bank account based on what's in certain consumer reports.

Additionally, one of the biggest impacts come when insurers occasionally check your credit score. I am actually receiving a discount on my bundled home-aut0-life policy because of my credit score. A poor credit score means that you can miss out on monthly savings in the form of lower insurance premiums. Over a lifetime, a savings of $10, $20, or $30 a month can make a real difference.

Others want to check your credit to determine what kind of deposit you will have to pay. Landlords sometimes adjust the security deposit you are required to pay based on your credit history. A poor credit history can result in a higher deposit, since there are indications that you could skip town without paying your rent. Cell phone, Internet, and TV providers sometimes run credit inquiries as well. The inquiry might only be a “soft” check, but it still emphasizes that these service providers want to know if you are reliable. In some cases, the company might require that you pay for your first month of service up front, rather than waiting until you have actually used it.

Finally, some employers run background checks that include pulling your credit report. Credit bureaus offer special credit reports geared toward employers for this purpose. Employers aren't supposed to have access to your credit score, but seeing some of your credit history can still help them get a feel for your habits — as well as whether or not you might represent a risk in sensitive situations.

In the end, more and more decision makers are relying on your credit. It's an easy indicator, and it's easy to access. So, even if you aren't borrowing anymore, and even if your debt levels are low, it makes sense to ensure that your credit history looks good.