Building credit is often touted as an essential part of personal finance. The reason? Your credit history and credit score determine your creditworthiness and shows lenders and business your risk potential as an individual. But what if you don’t have plans to ever use a loan or a credit card? Is building credit still important then?

The short answer is yes, building credit is important- and not just for obtaining financing. In this article, we’ll take a quick look at why building credit is so important and how it can affect your everyday life.

Why Do I Need Credit?

Credit refers to your creditworthiness as a borrower or the likelihood you’ll repay a debt on time. And it’s your credit score and credit history that are used by lenders, landlords, and even employers to evaluate your ability to manage money and pay your bills on time. A good credit score and history can increase your chances of getting approved for loans, credit cards, and rental properties, and can also result in lower interest rates and fees.

Credit is also used to determine the terms and conditions of your credit agreements. This means that the better your credit score, the more favorable terms you may be offered, such as lower interest rates, higher credit limits, and more favorable repayment terms.

Credit can also help you in case of an emergency. If you need to borrow money in a crisis, having a good credit score and history can help you get approved for a loan or credit line more quickly and at a lower interest rate.

How Credit Can Affect Your Everyday Life

While often associated with loans and credit cards, your credit score and credit history can actually impact several aspects of your everyday life. Here are a few examples:

• Getting approved for a loan or credit card. Lenders use your credit score and history to determine your creditworthiness and decide whether to approve you for a loan or credit card. The better your credit, the more likely you are to be approved and get better terms, such as a lower interest rate.
• Renting an apartment. Landlords may check your credit score and history as part of their tenant screening process. If you have a low credit score or a history of late payments, it may be more difficult to find a place to rent.
• Getting a job. Some employers may check your credit score and history as part of the hiring process. A low credit score or a history of financial problems may make it more difficult to find a job.
• Car Insurance. Your credit score and history may also be used by insurance companies to determine your premium. It may help you to get a better rate if you have a good credit score.
• Accessing utilities. Some utility companies may check your credit before providing you with services like electricity or natural gas. If you have a low credit score, you may be required to pay a deposit or have a co-signer.
• Banking. Having a good credit score can also help you qualify for a higher balance or lower fees on your bank account.

Ways You Can Start Building Credit

If you’re trying to build credit for the first time, there are a few steps you can take to establish a credit history and improve your credit score:

• Apply for a secured credit card. A secured credit card requires a deposit, which serves as collateral for the credit limit. These types of cards are easier to get approved for and are a good way to start building credit. Just make sure to choose a card with a low annual fee and make payments on time.
• Become an authorized user. If you have a family member or friend with good credit, they can add you as an authorized user on their credit card. This will allow you to use their credit card, and their payment history will be added to your credit report, helping you establish a credit history.
• Get a credit-builder loan. A credit-builder loan is a type of loan where the money is held in a savings account while you make payments. Once the loan is paid off, you’ll have both the loan and the savings account on your credit report, which can help boost your score.
• Apply for a credit card from a credit union. Credit unions often have less strict credit requirements than banks. If you’re a member of a credit union, you may be able to get a credit card even if you don’t have a credit history.
• Rent reporting. Some rent reporting services allow landlords to report their tenants’ rent payments to credit bureaus. So, if you pay your rent on time, it can help you to build credit.
• Pay all your bills on time. Late payments can have a negative impact on your credit score. It’s important to pay all your bills on time, including utility bills, phone bills, and student loans.

How Long Does It Take To Build Good Credit?

Building good credit takes time, and the length of time will depend on a variety of factors. Generally, it can take several months to a few years to build a good credit score, but in some cases, it may take longer.

One of the factors that can affect how long it takes to build good credit is how you go about building credit. For example, applying for a secured credit card and making payments on time will help you establish a credit history and improve your credit score more quickly than if you only pay your bills on time.

Another important factor is the type of credit you’re trying to build. A credit score is based on several factors, including payment history, credit utilization, credit age, and types of credit. If you have a mix of different types of credit, such as a credit card and a loan, it can help you build credit more quickly.

The length of time it takes to build good credit also depends on the state of your credit history when you begin. If you have no credit history or a negative credit history, it can take longer to build good credit than if you have a positive credit history but just a low credit score.

The Bottom Line

Building credit is because it can help you access to credit when you need it, help you get approved for loans and credit at better terms, and improve your overall financial flexibility. Keep in mind, however, that building good credit is an ongoing process.

Luckily, there are ways you can make your credit-building journey easier. One of these is credit restoration, the process of removing negative information from your credit report. Call us at 888-799-7267 to schedule a Free Credit Consultation.