Why you should care about your credit score

I was at a bonfire this weekend, and the topic of credit history came up. Two views were presented:

1. debt is evil and credit scores don't matter
2. debt is a valuable financial tool if used properly, and credit scores are very important

I'm firmly in Camp 2. You should definitely care about your credit score. Here are a few things affected by your credit score (AKA credit history or credit rating):

• mortgage rates
• car loan rates
• credit cards rates
• small business loan rates
• auto insurerance rates
• home insurance rates
• renting rates
• employment options
• cell phone service
• utilities rates

The reason your credit score affects so many areas of your life is that it's used as a measure of how financially risky you are. Because of the tradeoff between risk and reward, if you have a low score, you're seen as high-risk, so institutions want a higher reward for dealing with you. So, your rates are higher, and your options are more limited than people with good credit.

Sources:

• Kiplinger: Why Your Credit Score Matters
• Kiplinger: How Credit Score Affects Insurance Premiums