Why Is Credit Important?

Written by Robert Ferry on October 31, 2021
Why Is Credit Important?

People have needs and want to be fulfilled. We purchase the basic things we need, such as food, water, clothing, and other stuff needed at home. In terms of our wants, we go buy gadgets, appliances, and other things to be happy.

There are best ways to pay for the purchases that we have made. We have cash-on-hand money, debit savings, and credit basis of payments. All three modes of payment are considered money and are all important to proceed to our check-out of such purchases that we will enjoy best in life. However, in this modern time, people tend to utilize debit and credit more often due to technology as a form of money. if we will compare the three modes. 

Debit and credit cards have chips to fully monitor the transactions made in every purchase, transfer of funds, as well as payment, are made. The presence of technology has made it easier to best access our debit and credit through our mobile phones, computers, and even Automated Teller Machines (ATM). In cases where we do not have a balance in our debit saving, or we just want to purchase things in advance, that is where credit cards become most advantageous to use. 

Why Are Credit Cards Essential?

Credit cards are utilized to purchase goods and services in advance without worrying if you have the money readily available in your account. It is the best mechanism that allows you to get the goods and services now and pay them in installments or at a later time.

However, you have to be financially responsible in building a good credit standing so that the credit providers will have a trust that you will pay them on time and with good belief.

Some people apply for a credit card and purchase the things they want, then, later on, will not pay on time until their credit cards are deactivated. They think that it is okay as long as they have purchased the things they want, but the thing they are sacrificing is their credit score and standing that might predict their future applications. In this article, we will further know why we have to take care of our credit score and why credit is really important.

Why is Credit Important In These 6 Aspects

While keeping in mind your purchase, it is very important building a credit score in good status because it will be inclined with other aspects of your life. Credit is beneficial to the following aspects:

Credit as Basis for Housing and Car Loans

If you are applying for housing loans and auto loans, either to rent or to own, it is essential that you have a good credit score because it will also be checked. Landlords and real estate agents will ask for permission to know the status of your credit.

If you have a good credit score, there will be a high probability that you will be approved for home equity loans; however, a bad credit score in your status might affect the application process in your loans. In terms of car or auto loans, agents who sell cars will look into your credit score as one of the references for the application process.

The value of a good credit score is important when you are planning to apply for housing and auto loans since it will be a reference if you are paying your financial liabilities responsibly. It is just important to maintain a good credit score so you will not have a problem with your future housing and car loans. 

Applying for other Credit Cards

The third aspect is if you are thinking to pledge for another credit because you find other credit card' features more enticing, you might want to check your current credit score because it counts. The credit card providers will look into your credit score if you are a responsible payer or not since it has a great impact on your application process with them.

Of course, if they see that you pay your outstanding balance on time, they will consider that you will even pay on time if you ever get approved by them. If they see that you are not that responsible and you always fail to pay, then they will need to reevaluate your application, or they might not give you the approval because they are taking into consideration the status of their clients.

Another thing related to credit cards is that your credit might also be a basis if you are applying to upgrade your credit limit. If you are a good payer, there will be a huge chance that you will be approved to obtain a higher credit limit than the previous limit given to you. So, you really have to monitor your account since it plays a vital role in your credit limit.

Credit as Basis for Life and Non-Life Insurance

When applying for an insurance policy, your credit plays a role because insurance agents will also look into your financial capacity. With insurance, you will get a predetermined policy that you will have to pay monthly, quarterly, and annually. If they see that you are paying responsibly, you might not pay deposits, and you may even get better contract terms. Here, they have these credit-based insurance scores calculator that will define how well you are paying your balances; this is the counterpart of credit score when it comes to insurance. For non-life insurance, they are even considering your credit if you will let your house and car be insured with them since you have to pay monthly, quarterly, and annually with them.

Credit as Basis for  Student Loans

If you have a plan of studying and you can't afford the whole tuition fee, then applying for student loans will be beneficial. However, you have to provide them with your credit status so that they will have a reference to how well you are going to pay your loans, credits and debts. Once you get approved for a student loan, your payment schedule will be determined by your credits. It is important that you make your payments on time so that you will continue to enjoy the loan that you have applied for. Delays in payment might cause some problems in your student loans and may put your status into default.

Credit as Basis for Utility Services

If you are going to apply for new utility service for your house, you might want to consider looking into your credit score because it is even one of the bases of your approval. For example, if you are applying for a new electric meter or line, they will conduct a background check about how well you are paying on time. Since there will be a monthly scheduled payment, your credits will be checked if you are capable of paying. Though credits are not the only basis of approval, it even entails a huge factor. The same goes for other utility services like water and the internet.

Credit as Basis for Employment Applications

This part may surprise you, but if you are applying for a job, your future employers may run a background check to know how responsible you are, not just in terms of paying but to know your priorities.

The employers will first ask your consent if you are willing to be checked, and you may answer them with a yes or no. If you agree to be investigated, then it means that you are not afraid because you are playing responsibly. If you answered no, then it may mean that you are afraid for your future employers to know how you are paying your liabilities. 

You do not need to worry because even if you do not have high credit scores, you might still be accepted for a job. The basis here is how responsible you are in terms of your liabilities. There is no shortcut to having a good credit score; it is a continued effort, so it will even show your consistency as a person.

What America Saves Has To Say

Since credit cards have become popular worldwide in terms of purchasing goods and services, it is also important for people to use it in moderation. America Saves launched a campaign for low to moderate-income households to conserve and reduce debts since some people are just swiping and swiping their credit cards whenever they need something. This campaign is managed by a non-governmental organization named Consumer Federation of America. Furthermore, this campaign utilizes the principle of social marketing and behavioral economics.

Conclusion on Why is Credit Important

In today's generation, we learn that a credit card is an important form of money to build credit score that includes our financial standing. The best purpose of these cards is not solely based on purchasing in advance and paying at a later time but in fact to earn rewards and show our financial capabilities. Even if there is a presence of cash money and debit cards, we cannot deny the fact that credit cards are enlightening us about their importance in today's market. These cards have made our life more efficient because we just need one small card to buy the many things we want and need in life.

On the other hand, we have to make sure to question and monitor our credit scores because it will also affect other aspects of our lives. Being a responsible payer will open us to a lot more opportunities in life. Credits are important in terms of applying for housing or auto loans and applying for other credit cards, as well as upgrading our credit limits. Credits are further important for getting life and non-life insurance as well as applying for a student loan. If you are thinking of applying for utility services, you have to have good credits. And lastly, credits will affect your employment applications since employers tend to conduct background checks.

Overall, we must take better care of our credit status because it will affect some important aspects of our life and if ever we decided to apply for a loan. There is one helpful campaign launched by America Saves that lets low to moderate-income family to conserve and reduce debts by the use of the principle of social marketing and behavioral economics. We should not take for granted the value of credit because it will save us someday in our financial journey. The best thing that we can do is to start being responsible payers so we will not regret it at a later time.

Article written by Robert Ferry

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