Why You Should Work on Your Credit (Even if You Never Plan to Buy a House)

While home ownership used to be a mainstay of the “American Dream,” rising housing prices and changing priorities mean not everyone wants to own a home these days. Many people prefer to have flexibility to move when they want, and just as many would prefer to let their landlord handle pricey upgrades and repairs.

Plus, housing in some areas has become prohibitively expensive— especially in coastal regions and the nation’s big cities. And, if you don’t like the idea of going broke to buy a home or saving up for a down payment for the next five to 10 years, then renting may seem like a much better deal.

Six Reasons You Shouldn’t Ignore Your Credit Score – Even if You Never Plan to Buy a Home

With all this in mind, it’s easy to understand why some people don’t bother worrying about their credit scores. If you’re not going to buy a house, why spend the time building credit or taking steps to boost a credit score you’ll never use?

Unfortunately, ignoring your credit because you don’t plan to buy a home is a mistake. Like it or not, your credit score impacts many areas of your financial life — and that’s true whether you choose to buy a home or not. Here are six reasons you should pay attention to and nurture your credit score no matter where you plan to live:

#1: You need a good credit score to rent your own place.

If you want to be a renter forever, that’s fine. Still, you’ll likely need decent credit if you want to rent a place on your own.

Most individual and corporate landlords run your credit report before they let you sign a lease, and poor credit or no credit may not bode well for your application.

To have the best shot at the rental home or apartment you want, you should absolutely take steps to build credit before you’re ready to rent. Without a credit score, it’s fairly likely you’ll need a co-signer to rent a place.

#2: You may need to borrow money for other big purchases, such as a car.

Buying a home is the biggest financial purchase most of us make, but it’s not the only one. If you ever want to purchase a car or borrow money to start a business, you will need a solid credit score and positive credit history.

If you skip building credit, you may not be able to borrow the money you need for these big purchases and others. Or, you’ll likely need a co-signer to do so – which comes with its own risks and headaches.

#3: You might want to buy a home later on.

It’s easy to believe you’ll never want to own a home when you’re young, but life has a way of turning what you think you know upside down. Renting may be ideal for the time being, but you could find yourself yearning for home ownership once you settle down, get married, or decide to start a family.

If you fail to build credit because you believe you’ll never buy a home, you could regret it if you change your mind later on. Your best bet is building credit early. You may think you won’t need it, but it’s hard for any of us to know what we’ll want out of life five, 10, or 20 years from now.

#4: Employers can check a modified version of your credit report before they hire you.

Here’s an interesting reason to build good credit: When you apply for a job, employers can check a modified version of your credit report with your permission.

If you have great credit and a solid history of repayment, letting a potential employer get a glimpse of your report could give you a better chance at landing a job. If your credit is poor or nonexistent, on the other hand, it could hurt your job search or limit your career potential with employers who bother to check.

#5: You may want to earn cash-back or travel rewards.

You could be missing out on some pretty lucrative rewards if you don’t bother building credit. The top cash-back and travel rewards cards make it possible to earn 1% to 5% percent back for every dollar you spend. However, you’ll only be able to take advantage if your credit score is good enough to qualify for one of these cards in the first place.

Also remember that credit cards offer additional perks that can make using them advantageous. Not only do you get zero percent fraud liability with most cards, but you can score added benefits like trip cancellation/interruption insurance, extended warranties, price protection, and more. None of the benefits are available if you can’t qualify for a credit card, however, which is yet another reason you shouldn’t ignore your score.

#6: You could pay more for insurance without a good credit score.

Last but not least, your credit score (or lack of a credit score) could cause you to pay higher rates for insurance. Many insurance agencies look at your credit score to determine how risky you are to insure, and a poor credit score or no score may not give them much confidence.

To score the lowest insurance rates possible, make sure your credit score is in the best shape possible.

Building Credit: How to Get Started

If you’re not buying a home but ready to build credit anyway, there are plenty of ways to get started — including signing up for a credit card. Ideally, you’ll start off with an unsecured credit card that offers a low interest rate, rewards, or other perks. If you can’t qualify for an unsecured credit card, you could also apply for a secured credit card that affords you a small credit limit after you put down a cash deposit as collateral.

Once you have an unsecured or secured card of your own, you can start building credit by using your card for small purchases you can pay off right away. Make sure you only charge what you can afford to pay back, and that you keep your balance as low as possible. Also make sure you don’t apply for too many new cards at once, and that you pay your credit card bill early or on time every month. Paying your bills on time, every time is the single best thing you can do to improve your credit score.

With enough time and plenty of on-time payments under your belt, you’ll begin building a credit history with the three credit reporting agencies – Experian, Equifax, and TransUnion. Your score should increase slowly over time if you use credit wisely, pay your bills on time, and stay the course.

You may never want to buy a home, but your credit score still has a role to play in your life and your goals. By nurturing your credit score and treating it with care, you can ensure your good credit is there when you need it.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

Related:

Are you focusing on building a good credit score? Why or why not?

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