Why Having Good Credit is So Important: Financial Planning Tips from the Experts
There’s a little three-digit number that is of absolute crucial importance and can have long-reaching effects for the rest of your life. And nope, we’re not talking about your weight, your IQ, your total cholesterol level, your SAT Verbal score, or even your number of Facebook friends. But rather, we are referring to your credit score: a three-digit number that can impact many facets of your life. As discussed in the previously published Summit blog entitled “Financial Planning Tips: What is a Credit Score and How is It Calculated?”, a credit score is a three-digit number derived from detailed information from your credit history that summarizes your credit risk—in other words, it helps lenders analyze how likely you are to pay back your credit obligations as agreed upon. When it comes to financial planning and your financial well being, the importance of having good credit cannot be understated. Here are just four of the reasons why having good credit is so important:
A higher credit score can help you save money. In general, the higher your credit score, the lower your interest rates and payments will be. Over the course of a loan, having a higher credit score can ultimately save you tens of thousands of dollars. Consider the following example: two different people—Person A has a FICO credit score of 620 and Person B has a FICO credit score of 760—are borrowing $280,000 (loan principle) on a 30-year fixed-rate mortgage. For this mortgage, Person A would have an 5.08% APR, a monthly payment of $1,517, and will pay $266,055 in interest over the 30-year course of the mortgage. On the other hand, for this same mortgage, Person B would have a 3.49% APR, a monthly payment of $1,256, and will pay $172,131 in interest over the 30-year course of the mortgage. In this specific scenario, the person with the higher credit score (Person B—760 credit score), will pay $261 less every month and save $93,960 over the 30-year life of the loan, compared to the person with the lower credit score (Person A—620 credit score).
Use the handy Loan Savings Calculator tool on the myfico.com website to see how your FICO credit score impacts the amount of interest you pay on a loan. With this Loan Savings Calculator tool, you’ll be asked to input your loan type and state, appropriate loan details, and your current FICO credit score range. This tool will help show you that having a higher credit score can mean big savings. Ultimately, your credit score can mean the difference between being able to purchase a home or having to continue renting.
A good credit score will make it easier to get utility services. When moving into a house or apartment, you typically have to pay for utility services like electricity, gas, and water unless someone else is paying these utility services for you (i.e., you’re renting an apartment where “utilities are included” as part of your rental agreement/lease). Applying for these utility services is apply for credit. Like other creditors, the utility company will ask you for personal information such as your Social Security Number so they can check your credit history with particular attention to be given to your past payment history for utility services. A good credit history will make it much easier to get utility services whereas a poor credit history can make it much more difficult. If you have a poor credit history and/or a poor payment history when it comes to utility services, the utility company may require you to make a large deposit to open an account with them and/or get a letter or guarantee, which is a letter from someone who agrees to pay your utilities bill in case you don’t.
A landlord can deny your rental application based on your credit history. Finding the perfect place to live can be a time-consuming, stressful, and expensive process. Imagine that you’ve found the perfect place to rent, but in order to live there the property manager tells you that he or she needs you to fill out a rental application, which includes a credit check. Property managers and landlords will typically check your credit report before deciding whether to rent to you. A property manager or landlord can legally choose not to rent to someone or charge a higher rent because of negative information found in their credit report, so long as they give the prospective tenant the name and address of the agency that reported the negative information and tell the prospective tenant that he or she has the right to obtain a copy of the file from the agency that reported the negative information by requesting it within 60 days of being told that the rejection was based on that negative reported information.
A poor credit history could even mean the loss of job opportunities. Finding a job, let alone a good job, is a difficult undertaking in and of itself. But did you know that you can be denied a job or a promotion due to information your potential employer finds in your credit report? Checking an employee’s credit history is not limited to jobs in the financial industry or for jobs that carry financial responsibilities but rather is a trend spanning across all types of industries. By law, know that a potential employer must first get your permission before running a credit check on you and they must tell you if you lost out on the job due to information they found in your credit report.
About Summit Brokerage Services, Inc.
Summit Brokerage Services is part of Cetera Financial Group. Summit Brokerage provides a broad range of securities brokerage and investment services to primarily individual investors. Summit Brokerage also sells insurance products, predominantly fixed and variable annuities and life insurance through its subsidiary, SBS Insurance Agency of Florida. Summit Brokerage also provides asset management services through its investment advisor, Summit Financial Group, Inc.
About Cetera Financial Group
Cetera Financial Group® (“Cetera”) is a leading network of independent retail broker-dealers empowering the delivery of objective financial advice to individuals, families and company retirement plans across the country through trusted financial advisors and financial institutions. Cetera is the second-largest independent financial advisor network in the nation by number of advisors, as well as a leading provider of retail services to the investment programs of banks and credit unions.
Through its multiple distinct firms, Cetera offers independent and institutions-based advisors the benefits of a large, established broker-dealer and registered investment adviser, while serving advisors and institutions in a way that is customized to their needs and aspirations. Advisor support resources offered through Cetera include award-winning wealth management and advisory platforms, comprehensive broker-dealer and registered investment adviser services, practice management support and innovative technology. For more information, visit www.ceterafinancialgroup.com.
*”Cetera Financial Group” refers to the network of retail independent broker-dealers encompassing, among others, Cetera Advisors, Cetera Advisor Networks, Cetera Financial Institutions, Cetera Financial Specialists, First Allied Securities, Girard Securities, The Legend Group and Summit Brokerage Services.