Busting Credit Myths: Why You Need Credit

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Establishing a good credit history can open up a lot of opportunities in the future when you need to borrow money, whether it's to buy a house or a car, start a business or cover emergency expenses. But it's a common myth that the only reason to build your credit is so you can take out a loan or credit card—building and maintaining a solid credit history can benefit you in many ways that don't involve debt at all.

Even if you're not planning to borrow money using a loan or credit card anytime soon, it's still important to know the many ways credit is important to your financial life. Read on as we bust the myth that you only need good credit to borrow.

4 Ways Your Credit Impacts You Beyond Borrowing Money

Here are four other situations where your credit is important:

  • Employment screenings: When you apply for a job, especially if the position involves managing money, your potential employer may check your credit report. Almost a third of employers run a credit check on some of their job candidates, according to a survey by the National Association of Professional Background Screeners. If an employer discovers proof of money mismanagement, it could decline to hire you, especially if the job is related to finance. Your credit could also come into play if you apply for a government job that requires a security clearance.
  • Home or apartment rentals: Landlords routinely check credit to determine the likelihood that you'll make your rent payments on time. If one finds evidence of unpaid bills or late payments, they could require a higher security deposit or simply choose another applicant over you.
  • New utility accounts: If you're applying to open a new account with a wireless carrier, a cable company or a utility provider, the process may involve a credit check. If you have a history of late payments or unpaid bills, the provider could require a security deposit or deny you service.
  • Auto and homeowners insurance: In states where it's allowed, 95% of personal insurers use a credit-based insurance score to help determine your rates, according to FICO®. This score is different from scores used for lending, but it's still based on information found in your credit reports. While insurers generally can't use a low score as the only reason to deny you coverage, it could hurt you if there are other negative factors influencing your premiums.

It's important to note that none of these situations involve someone checking your actual credit score, just your credit report. And the type of inquiry that occurs won't hurt your credit score at all.

Monitor Your Credit to Track Progress

Of course, building a good credit history can also save you money if you plan to borrow in the future. But understanding the other ways your credit score can impact you can make it easier to get started on building your own credit profile.

As you get started, Experian's free credit monitoring service can make it easy to keep track of your progress. With access to your Experian credit report and FICO® Score powered by Experian data, you'll have all the information you need to see how your actions influence your credit score and actions you can take to address potential issues along the way.