Good credit — is it overrated?
There was a time when cash was king. It seems like those days are long gone and now credit determines everything.
Our county, from top to bottom, is built on credit. We need credit to buy a home, a car, to rent an apartment, to lease anything, to get a cell phone, to gain employment, to start a business, to determine interest rates on any financial obligation and your insurance payments.
So you see, we all live on credit. We all need credit. All of this revolves around a credit score. Your credit is being monitored at all times.
Believe it or not, all of these things may be out of reach — or certainly far more difficult and costly — if you have a poor credit rating. And herein lies the problem for many.
The problem is that Americans, by and large, tend to only pay attention to their credit ratings when it’s time to apply for a loan or credit. In fact, a survey from the National Foundation for Credit Counseling revealed that seven out of 10 Americans don’t check their credit reports each year. Ditto for people checking their credit scores.
Sure, we may pull our credit reports when it’s time to buy a home or refinance a mortgage. Or we may check our credit scores before seeking another credit card or filling out a student loan application. But what about the times when there’s no banker scrutinizing your financial history?
Take insurance, for example.
“Bad credit will make your insurance cost more or will render you ineligible except for the most expensive coverage,” says Eustace L. Greaves, Jr., owner of Greaves Financial Services and The Bridge Insurance Agency in Brooklyn, New York.
Greaves offers a few real-life examples of some recent clients. “In one instance, I had two clients in Bed-Stuy, both with brownstones. The houses were similar in construction and were basically a mirror image of each other,” Greaves says.
But the two clients — who were both women — differed in one significant way: their credit profiles.
The first woman had excellent credit, Greaves says, and the annual premium for her homeowner’s insurance totaled $1,350 a year. Meanwhile, the second woman had less-than-perfect credit and had to pay $2,400 a year for coverage.
How home insurance costs go through the roof
Why such a high rate for the latter client? It’s likely that the woman had one of what Greaves calls “the five credit sins”: (1) bankruptcy in the last five years, (2) foreclosure, (3) repossession, (4) a judgment, and (5) any collection items at all.
According to Greaves, if you have any of the above five items on your credit report, it’s going to hurt your insurance credit score and cause you to pay considerably more for things like auto, homeowner’s or renter’s insurance. So, over a decade, the woman with great credit will save nearly $11,000.
Even more startling, the cost to the female client with bad credit had been previously higher. Greaves says he secured the $2,400 a year premium for the client with poor credit only after getting her out of an even more costly insurance plan.
I hope this example makes you ask yourself, “Is having good credit rating overrated?”
My opinion is no, not at all — it is a must.
So, I wrote this article to find out how many people think having good credit is overrated. I also want to know how many people have been rejected for a loan due to having bad credit.
Shawna Frazier, a realtor for Re/Max Results, has had a successful full-time real estate business for the past 12 years. Her goal in the coming weeks is to share information of value to MSR readers that will include tips on selling, buying, investing, and restoring your credit. She welcomes reader responses to Shawna.firstname.lastname@example.org.