If you think the only time your credit scores are important is when you’re in the market for car financing, a mortgage, credit card or other new loan, you’re not alone. You also are wrong. Nothing could be further from the truth.
For a variety of reasons, your scores are just as important when you’re not shopping for credit as they are when you’re filling out loan applications.
One of these reasons, of course, is that lenders aren’t the only people you do business with who may check your credit scores. Landlords may ask for your score before deciding whether or not to rent to you. Utility companies may check your score before deciding whether or not they will require a deposit or prepayment before setting up your account. (Employers cannot check credit scores as part of a hiring decision, but they may check a limited type of credit report after receiving the prospective employee’s written permission, and only in accordance with state and federal law.)
Another reason to be mindful of your credit score all the time, and not just when you’re considering a “major purchase,” has to do with the notion of lenders monitoring your score as part of ongoing account management processes. This is discussed at greater length in this month’s Did You Know article, but the net results are that a significant reduction in your credit score can cost you a great deal.
The most compelling reason for aiming to maintain as high a credit score as possible, even when you don’t plan to borrow money, is that life doesn’t always stick to your plan. When it comes to applying for credit, you don’t know what you don’t know.
What if your car breaks down and you need to apply for an auto loan? What if you decide to refinance your mortgage because interest rates hit another all-time low? What if one of your credit card issuers levies an annual fee on your credit card and you want to replace it with a new no-fee card? Each of these will result in your credit scores being pulled, and if they aren’t in good shape then you may not get the best deal the lender has to offer.
If this sounds like too much work, don’t worry. Your credit score is just a reflection of your credit habits. Pay your bills on time, maintain modest amounts of credit card debt (VantageScore Solutions recommends no more than 30% of your borrowing limit), and avoid applying for excessive credit, and you’ll stay on the right track. If your score is lower than it should be, it will improve over time, and if your score is good, it will stay that way.
The “lather, rinse, repeat” strategy works very well when earning great credit scores.