Why Investing in Your Credit Score is an Underrated Skill

Photo by Clay Banks on Unsplash

Saving for retirement is more challenging than ever in this current economic climate with multiple crises – the pandemic, inflation, supply chain delays, and rising interest rates. According to statistics compiled by Yahoo Finance, at least 27% of Americans have stopped contributing to retirement savings because of COVID-19. Meanwhile, 21% have dipped into their savings.

Although building your retirement savings is difficult, it is not impossible. Exploring the stock market and alternative investments, such as real estate, fine art, and commodities can be lucrative when done right. But there’s one investment that often goes unnoticed: your credit score. 

Most people forget that you can enjoy many money-saving perks when you maintain a healthy credit score. So it is important to consider these benefits.

Better Chances for Credit Approval

When you apply for a mortgage, loan, or credit card, financial institutions will look at your creditworthiness before they approve you.

While some go for soft credit checks, others make hard inquiries. Upgraded Points explains that hard credit checks involve pulling your entire credit report, which reflects your payment history and other places where you’ve applied for loans. These checks can lower your credit score, especially if there are several requests within a short period.

Hard checks can't be avoided when applying for new credit, but maintaining a high credit score can help soften the blow.

Lower Interest Rates on Loans

It’s no secret that inflation is causing interest rate hikes. This year, a Bankrate poll found that the average personal loan interest rate has risen from 10.41% in May to 11.08%  in October. That’s why it’s crucial more than ever to have a good credit history.

Your credit score is directly related to your interest rate on loans. If you have poor credit, you can expect to pay higher interest rates than someone with a solid financial standing. 

Better Insurance Rates

Not many people realize that your credit can also affect insurance rates. Insurance providers determine premiums based on your level of risk, and that includes how well you manage your credit.

When you have a high score, it shows that you can be trusted to pay bills on time and avoid debt. As a result, you could pay less for insurance than someone with a lower score.

This also applies to car insurance rates, even though credit has nothing to do with your driving skills. To prove this, Forbes Advisor analyzed the correlation between credit scores and auto insurance rates. They discovered that rates for poor credit are higher (74% average annual increase) than rates for speeding tickets (21%) and DUI (74%).

Final Thoughts

In summary, investing in your credit score is a great way to save money. It affects several financial aspects of life aside from loans. So it pays to keep it healthy. 

If you currently have a poor credit score, there are steps you can take today to improve your credit score. Improving it and keeping it high afterwards will reflect on your ability to adapt and reclaim your financial health.