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Thread: Importance of establishing credit? ( loans, leases, jobs, insurance rates )

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    Default Importance of establishing credit? ( loans, leases, jobs, insurance rates )

    I'm just curious, how important is it to establish credit if you're someone that never plans on financing anything, someone who doesn't need to borrow emergency money...

    I have zero credit and everyone is always telling me I need to establish some. I have no interest in credit cards especially since I'm sure that, for the near future at least, any limit I was given would not exceed the amount I currently have saved. So I don't really want a secured credit card. However I believe that one of my banks offers a sort of secured loan for building credit where you put down a thousand bucks and then they lend you a thousand bucks. ?

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    Default Re: Importance of establishing credit?

    for better or worse, checks of credit rating is now part of the 'standard procedure' of potential straight job employers when evaluating job applicants. The theory of course is that an individual's credit rating amounts to an indirect measure of that person's 'responsibility' level, work ethic etc.

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    Veteran Member Citychick's Avatar
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    Default Re: Importance of establishing credit?

    It is important these days, annoyingly.

    I see your point about not 'needing' it, if you are self employed and are saving for a business venture.
    But we never know when the tables might turn, imagine you are restoring a building and it costs more than planned (as these things inevitably do), and more than your reserves allow for.
    Getting a short term loan from somewhere would be an option unavailable to you with no credit history.

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    Veteran Member Krill_'s Avatar
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    Default Re: Importance of establishing credit?

    Insurance companies check your credit because there is supposedly a correlation between your credit score and likelihood of filing a claim. I seem to remember you saying you wanted to get a bike...if you get full coverage the premium difference between bad / fair / good credit could be quite a lot.

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    Default Re: Importance of establishing credit? ( loans, leases, jobs, insurance rates )

    I've always felt the same way as you do but I decided to open an account earlier this year because of the reasons that have been stated here. I hate using it because I try to pay in cash as often as possible, but I have gotten a sense of satisfaction watching my credit score jump. I try to think of it this way though -- my credit score will kick ass because of the fact that I don't need one. So will yours.

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    Default Re: Importance of establishing credit? ( loans, leases, jobs, insurance rates )

    I'm SO glad to see your question, Zinaida. I've been struggling with the same thing, and here is what I've learned:

    Recently my application for a credit card I REALLY need was denied. The reason? "Too few satisfactory credit references on your credit bureau report." This isn't what it sounds like, though. The catch is my credit is as perfect as it could be for someone my age. I've always usedmy cards responsibly and have never once been late on a payment. The problem is I only have 2 cards! I actually manage my finances so well that I rarely use these cards anymore and pay cash for everything, even cars.

    Despite the stupidity of the situation, the importance of establishing and maintaining good credit finally sunk in for me. As someone else said, you never know when you'll need credit so it's a good idea to have it "on hand" in such an event.

    My advice to you would be to start out with 1 credit card through your bank, even though you, like me, don't really need it. Then maybe get another with a clothing store you freqient. For the bank one, put things like airplane tickets on it and pay it off in full when you receive the statement.

    The bank loan is something I've never thought of before, but 2 things occur to me. First, since it's probably considered a personal loan, the interest rate may be excessive. If so, this is akin to you throwing money away. Second, a credit card you use occasionally is probably less of a hassle then taking out such a loan and paying it back according to the bank's rules.

    I hope these ideas help you!

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    Default Re: Importance of establishing credit?

    Quote Originally Posted by Krill_ View Post
    Insurance companies check your credit because there is supposedly a correlation between your credit score and likelihood of filing a claim. I seem to remember you saying you wanted to get a bike...if you get full coverage the premium difference between bad / fair / good credit could be quite a lot.
    I'm doing cash for that

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    Veteran Member Krill_'s Avatar
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    Default Re: Importance of establishing credit?

    Quote Originally Posted by Zinaida View Post
    I'm doing cash for that
    You still have to have insurance

    I switched my truck and both bikes to Progressive last year as the old insurance ran out and every time they sent a form letter informing me that they had accessed my credit score as part of assessing the premium. The difference between good credit and bad credit / little credit / no credit...perhaps for a bare bones liability policy it's only a few bucks but for comprehensive and higher coverage limits (stupid to ride with anything less than 100k for uninsured / underinsured) it could be a lot money.

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    Default Re: Importance of establishing credit?

    Quote Originally Posted by Krill_ View Post
    You still have to have insurance

    I switched my truck and both bikes to Progressive last year as the old insurance ran out and every time they sent a form letter informing me that they had accessed my credit score as part of assessing the premium. The difference between good credit and bad credit / little credit / no credit...perhaps for a bare bones liability policy it's only a few bucks but for comprehensive and higher coverage limits (stupid to ride with anything less than 100k for uninsured / underinsured) it could be a lot money.
    This is interesting.
    I didn't realize that we can up our credit rating with insurance.
    I've always been fully comp (for peace of mind), I wonder if ith other types of insurance (home, personal etc) the higher the tier you choose the better your rating ?

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    Default Re: Importance of establishing credit?

    Quote Originally Posted by Krill_ View Post
    You still have to have insurance
    OIC what you mean

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    Default Re: Importance of establishing credit?

    Quote Originally Posted by Citychick View Post
    This is interesting.
    I didn't realize that we can up our credit rating with insurance.
    I've always been fully comp (for peace of mind), I wonder if ith other types of insurance (home, personal etc) the higher the tier you choose the better your rating ?
    Other way around, the insurer uses your credit score as part of assessing a premium. Higher score = lower premium.

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    Default Re: Importance of establishing credit?

    Quote Originally Posted by Krill_ View Post
    Other way around, the insurer uses your credit score as part of assessing a premium. Higher score = lower premium.
    Ohhhh I see. I obviously read it wrong.
    Thought it sounded a bit too good to be true lol

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    Default Re: Importance of establishing credit? ( loans, leases, jobs, insurance rates )

    Some insurance companies do check your credit score as a part of the underwriting process. The correlation between score and claims is dubious at best, and the scoring company specifically disclaims any relationship. Still, they sell the scores rather aggressively to insurers. To my knowledge no insurance company reports payments to any of the credit reporting agencies. This costs money and gets the insurance company nothing in return.

    Banks always check both the credit score and a job applicant's credit report (the most expensive option) in the employment decision making process. This makes a fair amount of sense as banks don't want to hire a credit problem. Other employers, check the credit score and a few get a full credit report. Especially in retail and other jobs where handling cash is involved this makes sense. But, given what most retailers pay, they are accepting some employees with remarkably awful credit scores. It is difficult to determine who really checks credit because most applications have a credit waiver on them. The only employers who do not check credit in any circumstance are those without a waiver.

    Lots of state professional licensing boards check credit and credit scores. Look at the CPA application in most states, the waiver is on the form. But, lots of other state boards check. My daughter's hair cutter told me she had to agree to a credit check as a part of her state licensing process. (Completely weird, if you ask me.)

    The short answer is, having a good credit score is better than having no credit score and much better than having a bad one. It really is one less thing to worry about.

    HTH
    Z

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    Default Re: Importance of establishing credit? ( loans, leases, jobs, insurance rates )

    I've never established credit of any sort, and neither has my husband. Nobody has ever cared. Not a single landlord, employer, utility company, etc. Okay, so I had to put down a $100 deposit when I signed up for cable Internet. So what? That's a 10-minute lap dance. A few friends of mine have recently bought houses without ever establishing credit. I know my city is more cash-oriented than some other cities, but I really do think the credit thing is overrated.

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    Default Re: Importance of establishing credit? ( loans, leases, jobs, insurance rates )

    ^^^ obviously a lot of geographic variables do apply. However, where large corporate employers or corporate landlords or corporate utility companies or major banks are concerned, lack of credit history and/or bad credit history is going to ...

    - cost you extra money in the form of higher interest rates, higher security deposits, higher insurance premiums etc.

    - cost you opportunities if another straight job applicant or another would-be apartment lessee has well established good credit rating whereas you do not

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    Default Re: Importance of establishing credit? ( loans, leases, jobs, insurance rates )

    I would say that it's extremely important. Here are a few things that having good credit is beneficial for in life....

    1-As someone stated, the rates you'll pay for insurance may vary depending on your credit, and you can be turned down by good insurance companies
    2-Some companies will check your credit score and use that as part of their hiring process
    3-If you want to rent an apartment, landlords will check your credit (I used to own property, and would run credit checks on potential tenants)
    4-Some utility companies will charge higher deposits for people with low credit scores
    5-If you ever want to start a business, you will need credit, and a bad/no credit score would prevent that from being a possibility

    Also...it's easy to say that you'll pay cash for everything, but you can't foresee the future. You may need to borrow money at some point...and in many situations, you may need a credit card (many places that rent things require a credit card for a deposit, for example).

    It's not hard to build good credit...just live within your means, pay your bills on time, and diversify your credit types.

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    Default Re: Importance of establishing credit? ( loans, leases, jobs, insurance rates )

    Melonie made my point better than I did. In some cities, caring about credit scores is part of the local culture; in others, it isn't.

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    Default Re: Importance of establishing credit? ( loans, leases, jobs, insurance rates )

    Good credit is EXTREMELY important.

    I had great credit, then went broke and fucked up my credit, then started dancing and now 1.5 years later, I'm STILL trying to undo my damage.

    I'm debt free but having zero debt does not amount to good credit

    I moved apartments a lot and I saw that that looks bad on your credit score, also the more credit checks you undergo, the more your credit score suffers.

    I had a score of 650 or 660 when I got my own apartment (thankfully without a cosigner) but that score has dropped to 630 cause of having 3-6 credit checks for utilities etc and due to a discrepancy with my student loans. I'm hiring a company my friend used for $80 per month to clean up my credit kind of like those companies that save your internet reputation.

    You aren't in that position and since you make good money and won't be broke long term like I was before dancing, you can start off on the RIGHT foot.

    A secure credit card is a great idea! You can't get rewards and points on them, but if you prefer to be very careful about spending only what you have and paying up front, brava.

    Also, if you use those go-phones like so many without credit, I suggest getting a proper phone plan. Worst case scenario is they make you pay something like $150 extra when signing up, which they REIMBURSE after you finish 1 year of payments or your contract without mishaps.

    Besides a secure credit card, I do recommend getting a regular credit card, don't be too scared! A good bet is CapitalOne, because they have lower standards for approval and also "lend conservatively" which means they'll give you a tiny credit limit. You can just buy something cheap once a month, pay it on time, and build credit.

    ****word to wise I just found out, too. If you have a credit card, the ratio of credit used to credit available impacts your score tremendously. So if you get approved for only $300, spend like $10-20 per month and then pay it. Even if you pay every month, buying a flight for nearly $300 or something like that will give you a huge 90% ratio of credit used.

    I ENVY YOU THE ABILITY TO START BUILDING CREDIT ON GREAT INCOME! IT WILL TAKE SOME PATIENCE BUT IT'S SOOOOO MUCH BETTER THAN DAMAGING IT AND TRYING TO SCRATCH YOUR WAY BACK TO HIGH 600/700 SCORE AND A GREAT REPORT, it's NOT just about the number of your score, but the full report

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    Default Re: Importance of establishing credit? ( loans, leases, jobs, insurance rates )

    Credit may not matter to you NOW, but you have to think pragmatically about your financial future. You won't always be in a cash industry. You won't always be debt-free (most likely). Medical bills can happen, you may decide that you want to go to grad school and have to take out loans, you may decide you want to buy a house and don't have the hundreds of thousands of dollars saved up ahead of time, you may have a kid and suddenly be unable to save as much as before. All of those things happen to people, and those who have decent and good credit come out of those situations FAR ahead of those who have no or poor credit.

    Definitely get a secured card. Don't ever use more than 25% of the credit limit because this keeps your debt-to-credit ratio positive, rather than making you look irresponsible. Your credit score doesn't care if your credit limit is 300 or 30,000 when it comes to this ratio: if you use too much of your credit they'll think you can't live within your means, and that severely negatively affects your score.

    I agree with a previous poster's guess that the secured loan may come with high interest rates. A secured card, (which, as marisa stated above, should be used minimally) if paid in full every month, costs you ZERO interest. It's using YOUR money to pay back yourself every month to prove that you are a responsible holder of credit.

    So to recap: credit is important whether you want it to be or not, so get started now in order to increase your future ability to get financing in case you end up needing it.

    Another factor of good credit is how long you've had a history. This is why it's so important to start on having credit (and keeping it positive) at a young age. If you want to buy a house at age 25 you're going to seem like a much more attractive prospect to lenders if you have 5 years of good credit rather than 1 or 2. Lenders look at both your longest open account and your average account age, so if you open a card and it doesn't cost you money to keep it open after it's served its purpose, KEEP IT OPEN because it'll continue to increase your "average age" of your credit

    Store cards don't count as much towards building credit as cards through a bank, so while it's nice to have a store card or two on top of your regular card, no need to go overboard in an attempt to build credit.

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