Reasons why good credit is valuable

Flexibility is key when the unexpected happens and you need to borrow money

Even if you don’t plan to borrow a dime, a good credit record is important. Like a household fire extinguisher: It’s smart to have a good one even though you have no plans to use it.

And your credit can influence your life in ways beyond borrowing. Here’s why good credit is so valuable.

Flexibility in a crisis

The coronavirus pandemic has taught us that we cannot count on things going as planned. Flexibility is key.

A good credit score can help you borrow at a reasonable cost. That in turn could help you buy groceries and other necessities even as your emergency fund is dwindling.

If you use investments to help pay living expenses, as many retirees do, access to credit may help tide you over when the markets are down.

Good credit can also be useful in leasing a place to live, because landlords sometimes check credit to evaluate tenant applications. Similarly, some employers check credit reports during the hiring process (although some jurisdictions restrict using credit reports in this way).

Savings you can put in the bank

Good credit also can lower some bills. Nationally, a good driver with poor credit would pay an average of $2,506 annually for car insurance. With good credit, the same coverage would cost $1,427. Only California, Hawaii and Massachusetts prohibit credit data from being used in setting car insurance rates.

Credit-based insurance scores are also used to set homeowners insurance premiums in most states, except for California, Maryland and Massachusetts. Poor credit can increase the cost “10 percent to 15 percent typically,” said Robert Hunter, director of insurance at the Consumer Federation of America. That works out to between $50 and $100 a year for most people, he said. Renters insurance may also be higher for those with poor credit.

Utility companies often use information from credit reports to set security deposits. Georgia Power, for example, uses credit scores to decide whether customers must pay a deposit, which can be up to two times the average monthly bill for the residence.

If you do borrow money, a higher credit score can earn you a lower interest rate, and thus, lower payments. And a cash-back credit card (typically available only to those with good credit) can give you money back without you paying a nickel of interest if you pay the full balance each month.