We're frequently told that having a good credit score is essential. We should work to get our score as high as possible. Why is that? Because credit scores are critical to your overall financial health. A good score can help you secure better rates on credit cards and loans for things you want or need.

 

Additionally, your credit score reflects your history of paying your bills on time. Timely payment is incredibly important to lending agencies and other businesses you may work with. Building up your score is key to accessing a variety of things in your adult life. This list will explain some of the areas affected by credit, from buying a home to getting a job.

Meeting Eligibility for a Credit Card

Credit card companies may decline you for lower-interest credit cards - if they extend credit to you at all. People with bad credit have a more challenging time qualifying for credit cards that will benefit them the most. Perks like cash back and travel points may not be available with cards you can get with bad credit.

Thankfully, there are certain cards you can use to build up your credit score. A secured credit card may be your best option. With a secured credit card, you pay the issuer a deposit, which becomes your credit limit. This reduces the risk to the lender; if you don't pay your monthly bill, they can recoup the funds from your deposit.

While many secured cards charge annual fees or have high APRs, there are some no-fee and lower-interest choices out there. However, you'll need to do your research to find the one that best meets your needs.

Purchasing a Home

When people start talking about why credit is necessary, buying a house immediately comes to mind. There's a good reason for that. For most people, purchasing a home requires taking out a substantial loan. Mortgage lenders want to be assured that you won't default on the sum you owe them.

A lower credit score indicates a riskier borrower, and many financial institutions don't want to take that risk. If the lender does give you a loan, your mortgage terms will likely be affected. Often, lower credit leads to higher interest on mortgages, increasing the amount you'll owe over the loan term. Your lender may also insist on private mortgage insurance, meaning you'll pay a monthly premium on top of your mortgage payment.

Even if you're not looking to buy a home right now, your credit score can impact your housing choices. Landlords will likewise look at your credit before deciding to rent to you. It all goes back to whether or not your score depicts you as someone who will pay the bills promptly.

Buying a New Car

In the market for some new wheels? Your ability to buy a car will be influenced by your credit score, too. Considering the average cost of a new vehicle now exceeds $40,000, you probably won't be paying for your ride in cash. Again, you'll have to secure a loan to help pay for the vehicle.

In this case, your credit will not only impact your ability to obtain a loan but also the amount of that loan. The size of the loan you can get will determine how much car you can purchase. Alternatively, it may be the difference between buying a new vehicle or a used one.

As with homes, even if you are approved for a loan with poor credit, you're not in the clear. Your interest rates will almost certainly be higher than if you had good credit. This will raise either your monthly payments or your costs over the life of the loan.

Either way, it could make the car too expensive - either in the short or the long run. Anytime you need a loan to help pay for something, you'll get better terms if your credit's good.

Setting Up a Household

Have you ever set up utilities in your own name? Often, being able to do so depends on having a good credit score. If your score is too low, the provider may deny you service or require a deposit.

This can happen because utility companies consider the exchange of service as your "borrowing" a month's worth of that service. In their view, your bill is not a direct payment but rather a security deposit against the borrowed service.

If they have reason to believe you can't or won't pay that deposit, they may decline you. Or you may need to put the utilities in someone else's name, meaning your regular utility payments won't help build your credit.

If that sounds like a vicious circle, that's because it is. Poor credit can impact your ability to set up utilities. Setting up utilities and paying the bills on time can help you build credit. Start working on your credit now, so you won't run into this problem later.

Securing a Job

It may surprise you that many employers conduct credit checks before offering someone a job. While they primarily check credit reports, not scores, what the report says may influence their hiring decision. An employer may deem it too great a risk to hire someone who isn't financially responsible.

Obviously, this will be more common in some professions than others. If you're looking for a job in any finance-related field, it's reasonable to expect this check. Law enforcement and government agencies may also look at these reports. These employers need to know that you can be trusted, particularly with money.

In addition to affecting your chances of getting hired, low credit can negatively affect you once you land the job. Your employer may look at your credit before approving you for a company credit card. If they have reason to believe you can't be trusted with that responsibility, it could hold you back professionally. They may also decide you aren't the right person for a promotion.

Your credit score will follow you into every aspect of your adult life. That is why it is so important to build it up. The sooner you can start improving your credit score, the better. It will set you up for a more secure financial future.