There’s a strong consumer movement right now focusing on getting away from using credit and a traditional credit scoring model. After all, if you don’t plan on using debt to finance any of your purchases, why do you need good credit?
The reality is a little different. Even if you never get a loan, your credit may be the subject of intense interest from those who provide financial services. In some cases, you still need good credit to make the most of your money.
Why Financial Companies Love Credit Scores
It’s not just lenders looking at your credit score. Even if you never apply for a credit card, and if you pay for your cars in cash, and never get a mortgage, your credit history still matters. Many financial services providers like credit scores because they offer a simple summary of the way you handle your money.
Here are some of the non-loan reasons you might need good credit:
- Cell Phone: If you want to get into a monthly contract (maybe to get a “free” smart phone), the provider might pull your credit. If you have a low score, you might have to pre-pay some of your contract. Cell phone service providers don’t want to chase down someone they think won’t pay.
- Cable/Satellite/Internet: These service providers often do a credit check before signing you up for service. Once again, it’s all about the perception of whether or not you’ll pay on time regularly, and whether your finances are in order.
- Insurance: Auto insurers are especially known for pulling your credit as part of the effort to determine whether or not you are responsible. The thinking goes that if you are responsible with your money, you will likely be responsible on the road. A good credit score can mean a lower premium — and more money in your pocket.
- Rental: Many landlords check your credit before letting you move in. You might have to pay a higher security deposit if you have poor credit.
On top of this, an increasing number of employers are interested in checking your credit report. While employers aren’t supposed to check your credit score before hiring you, they can ask to look at a special version of your credit report. The result is that if there are red flags on your report, you might not be hired for certain positions.
Is It Fair?
To many, this state of affairs is grossly unfair. And, to a certain extent, they are right. After all, if you don’t use credit, your credit score ends up being low, since there is no record of how you handle debt. There are some alternative scoring modelsout there that will help you track on-time payments to landlords and utilities, but in many cases it’s not the same thing.
Good credit matters, even if you don’t plan on getting a loan. Over time, not having a credit history can cost you, since you might end up paying more for certain services. And, if you’ve made mistakes in the past, ignoring your credit and hoping it will go away, instead of trying to rebuild your credit, can be just as detrimental.
What do you think? Do you think it’s fair to base non-loan decisions on your lack of credit history?