A recent comment at my Smart, Not Perfect post suggested that people should not worry about their credit scores and instead strive to live without debt. I disagree with this comment for two different reasons. First, I disagree because I do not think that those two things are related. You can be debt free and still have great credit, and both are important. This brings me to my second disagreement: everyone should strive to have a good credit report, even if they don’t plan to use that score to acquire new debt. There are six very important non-debt matters that depend on your credit report, and it can cost you dearly if that report has negative information on it.
Number 1: Security Clearances
If a government security clearance is a condition of your job, you need to keep your credit report clean. Financial problems are the number one reasons for denials and revocations of security clearances. Inside the military, a security clearance can mean the difference between staying in or being forced out, or it can mean the difference between being assigned to a great job vs. an awful job. If you are a civilian, your security clearance helps you to get a job, it greatly increases your potential salary, and it makes you more likely to keep your job if your company downsizes. And losing your security clearance often means losing your job as well.
Number 2: Insurance Policies
Insurance companies check credit reports as part of their underwriting process. Poor credit can increase the rates that you pay for your insurance, and can even make you ineligible for a policy.
Number 3: Setting Up Utilities
You can get household utilities even with poor credit, but you will have to provide hundreds of dollars in security deposit for each utility. Customers with better credit can pay smaller deposits, or even no deposit at all. Much better to keep that money in your own savings account!
Number 4: Renting an apartment
Most reputable landlords, whether a private individual or a large company, require a credit check as part of the rental application process. As a landlord, their primary interest is whether they will get paid, and then whether the tenants will leave the unit in good condition when they move out. Landlords are very reluctant to rent to people with poor credit, especially if it is a current issue, because they do not want the hassle of a non-paying tenant. If you are able to find someone to rent to you with poor credit, you will probably have to pay a much higher security deposit, possibly higher rent, and you may find that your choices are in less desirable areas.
Number Five: Getting A Job
Even if you don’t need a security clearance to do your job, you still probably want to work. Many employers, especially for career-type jobs, will require a credit report as part of the job application process. Employers are looking for responsible employees, and one way that they can narrow the field of possible applicants is by weeding out anyone with poor credit. Keeping your credit report reasonably clean will increase your employability and therefore increase your potential earnings.
Number Six: Banking Services
Like most people, you probably want to pay as few bank fees as possible. This would include having a free checking account, preferably one with the best benefits. In most cases, those great accounts are only available to people who have good credit. Every time a bank opens a new checking account, they evaluate the likelyhood that that the account could become overdrawn and cost them money. Customers with poor credit are at a higher risk of overdrawing their account, so banks are less likely to offer them the most favorable bank accounts.
There are many other infrequent issues that can also be affected by a negative credit report, including getting the cell phone plan that you want. In general, good credit gives you the flexibility to make more choices in your own life. I’m not advocating that you become preoccupied with your credit report or credit score and start doing crazy things to raise that obviously elusive number to some stellar levels, but just that you be aware of the fact that bad credit will cost you in more ways that just higher interest rates and the inability to get more credit.
Just to look at the other side of the situation, you might enjoy 10 Places You Don’t Need A Good Credit Score.