Credit scores and credit health can seem inconsequential when you’re young. It may be obvious that “good” credit is better than “bad” credit, but it’s easy to underestimate the difference a few hundred points in your FICO credit score can make.
Once a young person gains their independence, however, the importance of credit may quickly become clear. Without decent credit, it may be difficult to reach many of life’s important milestones. Plus, many of the transactions you make become a lot more expensive.
A FICO credit score is the number often used as an indicator of your credit health. According to FICO, “good” credit is a FICO score of 670 to 739, “very good” credit is a score between 740 and 799, and any FICO score higher than that — up to 850 — is considered “excellent.” (See also: What Is a Good Credit Score and Why Is It Important?)
While these numbers may not mean a lot at first glance, they could matter more than you think. Here are six ways good credit can make your life easier.
1. You could qualify to rent or buy a home
When you apply to rent an apartment or home, chances are your landlord will require a credit check. Many landlords view negative marks on your credit report — such as foreclosures or accounts in default — as signs that you may not pay your rent on time. If you have bad credit or no credit reporting to speak of, it may be difficult to rent an apartment without a co-signer. (See also: 15 Surprising Ways Bad Credit Can Hurt You)
The same is true when it comes to purchasing a home. Without good credit, you may not be able to be approved for a mortgage. You might qualify for certain FHA loans if you have poor or fair credit, but the terms may not be ideal.
The bottom line: Building good credit makes life easier because it can help you buy or rent the place you want. (See also: 7 Ways to Raise Your Credit Score)
2. You might have a leg up in your job search
When you apply for a new job, your employer has the option to pull an “employer screening report” that highlights the general health of your credit. This isn’t a full credit report, but it can still show your employer how well you have handled credit and borrowing in the past. That behavior may be especially important for jobs that involve handling financial information for a company or its customers. (See also: Here’s How Your Credit Score Affects Your Job Search)
A potential employer won’t see your actual FICO score, but they will see information such as bankruptcies, liens, and foreclosures. If you have poor credit and a potential employer checks, you could miss out on your dream job. On the flip side, having good credit means you have nothing to worry about. It could even give you an advantage over other job applicants.
3. You could qualify for lower interest rates
Want to buy a house with poor credit? Plan on forking over higher interest payments. According to the Experian blog, qualifying for the best mortgage rates typically requires very good to excellent credit. That means a score in the mid 700’s or higher.
If your score is lower, you could end up with higher interest rates, meaning you’ll have to make higher monthly payments for your loan. This is true not only for housing, but for many other big purchases you make, including financed vehicles or even private student loans.
Conversely, having good credit can help you qualify for loans with the lowest interest rates and best terms. This can help you save a significant amount of money over your lifetime. (See also: How to Rebuild Your Credit in 8 Simple Steps)
4. You may get the best rewards credit cards available
The best cash back credit cards and travel credit cards make it easy to earn cash back, airline miles, hotel points, or flexible travel credit. Depending on how much you spend on credit cards every year, these points could add up to hundreds or even thousands of dollars in rewards that are “free,” provided you never carry a balance.
The thing is, you will not be able to qualify for the best rewards credit cards if your credit is poor or even average. Card issuers typically only approve people with good or excellent credit for the credit cards with the juiciest rewards and best perks. (See also: 5 Best Credit Cards for People with Excellent Credit)
5. You can get better insurance rates
While poor credit won’t stop you from driving, it can force you to pay a lot more for auto insurance. A recent Consumer Reports study highlighted how this works and why.
Besides looking at your driving record, auto insurance companies use a special credit score derived from your credit record to determine how risky you may be to insure. If you have poor credit, they may assume you’re more likely to get in an accident and file a claim, even if you’ve never filed a claim in the past.
Unfortunately, even having just “good” credit can cause you to pay more for insurance than those with excellent credit. As Consumer Reports showed in its report, the average driver with “good” credit paid $214 more for insurance per year than a similar driver with “excellent” credit.
The bottom line: The best insurance rates go to those with the best credit. This is yet another way having stellar credit can help you save money.
6. You may enjoy more autonomy in life
One of the worst parts about having poor credit is the fact you’re constantly beholden to others. You may need a co-signer to rent an apartment, buy a car, or finance a home, for example. If you can’t find a co-signer for a car or home and can’t qualify on your own, you may wind up living in less than desirable conditions or relying on less convenient means of transportation to get to work.
But, good credit offers a way out. With a FICO score that’s considered very good or excellent, you can start living life on your own terms. Good credit makes it easier to borrow money affordably for nearly any goal, and all without outside help.
Good credit won’t make you happy, but it can make life easier. It can also help you save money, which can absolutely make your life better. When you’re not spending extra money on car insurance and interest payments, you may be able to afford more of what you truly want in life.
Poor credit may not seem like a big deal, but it could stand in the way of what you want somewhere down the line. If you know your credit needs work, the best plan of action is to take steps to improve it now. With some time and planning, you could be on your way to better credit — and a better life. (See also: 5 Ways Life Is Amazing With an 800 Credit Score)