It’s impossible to establish a good credit history overnight—good credit can only result from a history of creditworthy habits and behavior. Luckily, if you put time and energy into establishing a positive credit history, the higher credit score that can result over time may enable you save you on interest charges and other expenses over the long run.
According to a 2010 Annie E. Casey Foundation report, a good credit history could enable an average borrower to save up to $250,000 in interest and other expenses over the course of their lifetime.
Lenders, insurers, and others may use your credit history as a factor in determining your risk as a consumer. The more likely it seems that you will make timely payments and employ other similar financial habits, the more likely it is that the business or provider will offer you a more favorable terms.
As you work to maintain good financial and credit habits, here are three important things you should keep in mind:
1. Your credit history and score may help you save on insurance.
Insurance can really cost you, but if you want to drive a car or buy a home, an insurance policy is a necessary part of life.
Many auto and homeowner’s insurance companies use a credit-based insurance score (CBIS) to determine whether you will be approved for coverage. Your CBIS is based on a number of factors, including certain information obtained from your credit report as well as industry-specific information, such as your driving record or the square footage of your home. A low CBIS is an indicator that your policy may represent a greater risk of loss to the insurance company.
If you have a good credit history/credit score, it could help raise your CBIS and, in turn, possibly lower the amount you are required to pay each month for your insurance premiums.
2. Smart borrowing starts with a strong credit history and score.
Most people need to borrow money at some point to achieve their goals. A solid credit history could save you hundreds of thousands of dollars in interest.
Your credit history and score is one of the most significant factors lenders use to predict whether you’ll repay your debt on time. If your score is low, they may charge you a higher interest rate to lessen their own risk. On the other hand, lenders view a high score as one sign that you have exhibited good credit habits and are therefore more capable of managing your finances and debt, and they may offer you a better rate.
Remember, the score your lender sees will likely be different than the one you see. It depends on the credit reporting agency from which the lender pulls your information.
3. A good credit score could make obtaining basic utilities less expensive.
Many utility, cable, and cell phone providers often check your credit score before you sign a contract. If your credit score is lower, companies could ask for a significant deposit or a letter from someone who will agree to pay your bill if you do not. In rare instances, providers may even deny you service altogether.
Applying for these basics is the same as applying for other kinds of credit. Like many creditors, utility companies may be more likely to extend more favorable terms (e.g., lower deposits, etc.) if you have a good credit score, and consumers who have proven their creditworthiness may not have to pay deposits or other added fees.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.