6 Reasons Your Credit Matters in a 2024 Economy
Building credit is an essential part of American life, as it impacts everything, from having your utilities connected to renting or buying a home. It also impacts your ability to take loans — and the rates you will get.
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In the current economic landscape, in which inflation is still sticky, rates are still very high and the housing market is tricky, credit matters even more than usual. While the Federal Reserve has signaled it would start cutting rates in 2024, the timing is yet unclear — and Americans’ wallets are still bearing the brunt.
“I believe your credit score is one of the most important numbers in your financial life, since it goes a long way toward determining whether or not you’re approved for financial products, as well as the interest rates you’re charged,” said Ted Rossman, senior industry analyst, Creditcards.com.
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1. Credit Tightening
Rossman argued that credit matters even more important these days because credit is tightening, so it’s getting harder to get approved.
“And with interest rates having risen so much, it’s all the more important to get the best deal you can,” he said.
For instance, Rossman said that in a scenario involving a $300,000 30-year fixed-rate mortgage, someone with a 690-credit score might pay $36 more per month than someone with a 700 credit score.
“That doesn’t sound like much, but multiplied over 30 years, it works out to nearly $13,000,” he noted.
2. Better Rates to Buy a Car
Having strong credit can be a major benefit if you have goals of purchasing a vehicle, or any other major expense using credit.
As Misha Mikhaylov, CFA and CEO of Llama Loan explained, you’ll get access to better rates and terms that ultimately lower the cost of your financing, which can make a huge impact on your finances going forward.
“Financing costs can be substantial, so any way you can limit them is worthwhile,” he said.
Indeed, the loans can vary wildly. For instance, with a super prime credit score (781-850), the average APR of a new car is 5.61%. Meanwhile, it increases to 6.88% for prime scores (661-780), 9.29% for nonprime scores (601-660), 11.86% for subprime scores (501-600) and jumps to 14.17% for deep subprime scores (300-500), according to NerdWallet, citing Experian data.
3. Better Credit Cards Rates
Another benefit of good credit is that it can unlock opportunities to find credit cards that may feature a 0% introductory APR (average percentage rate).
“While credit cards should always be used wisely, obtaining a 0% interest rate in today’s environment is a great opportunity to save money,” said Mikhaylov. “While I never recommend going into debt with credit cards — if you use your card on everyday expenses, you can earn rewards and pay zero interest on your purchases.”
4. Approval for Higher Credit Limits
In addition to being able to qualify for lower interest on credit cards, good credit can also help you get a higher credit limit on credit cards, according to Chase.
What’s more, good credit may also help you get bigger loans from banks.
“Since a good credit score may signal to lenders that you’re a good credit risk, they may be willing to lend you more money,” according to Chase.
5. Financial Flexibility During Uncertainty
A strong credit score can be a financial lifeline, giving you access to credit when you need it most, especially during emergencies or economic downturns.
In turn, this ensures that you are prepared for any unexpected expenses that may arise, said Sean Lovison, CFP, founder and lead advisor, Purpose Built Financial Service.
“However, it’s still a good idea to set up emergency funding options, like a HELOC, before they are needed, as it can be harder or impossible to get one when you need it,” he added.
6. Employment and Housing Opportunities
Another important advantage of a good credit score is that it can make a huge difference in competitive job and housing markets.
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“It’s like a 5-star Google review to potential employers and landlords, which can increase your chances of getting hired or approved for housing,” said Lovison.
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This article originally appeared on GOBankingRates.com: 6 Reasons Your Credit Matters in a 2024 Economy
