What are seven financial perks of maintaining great credit?

Ralph Estep Jr.:
00:00

Hey there, financial warriors. It's Wacky Wednesday and boy, do I have a treat for you today. Now, before we dive in, let me ask you this. What if I told you there's a secret weapon that could save you thousands of dollars every year. Are you intrigued? Well stick around because today we're unlocking the power of great credit and how it can transform your financial life.

Ralph Estep Jr.:
00:22

Let's take a quick look back at yesterday's show. We talked about how to protect yourself from identity theft online. Remember folks. A strong password is like a sturdy lock on your front door. Keeps the bad guys out. If you missed it, make sure to check out our episode in our archives, you can visit askralph.com to review all of our past episodes. Well, let's kick things off with a message from one of our listeners. This comes from Kim in Boise, Idaho.

Kim:
01:07

Hey Ralph, I've been struggling with my credit score for years. It feels like no matter what I do, I can't seem to improve it. I know having good credit is important, but I don't really understand why. Can you explain how having great credit could actually benefit me financially? And on the flip side, how is my poor credit costing me money? I feel like I'm stuck in a financial rut, and I could really use some guidance. Thanks for all you do.

Ralph Estep Jr.:
01:37

Well, Kim, first of all, thank you for your question and thank you for being a loyal listener. I'm so glad you reached out because this is a topic that affects so many of us. And let me tell you, you're not alone in feeling stuck. Many people struggle with understanding credit and its impact on our financial lives. But don't worry. We're going to break it all down today. Welcome to the Ask Ralph Show, mastering your finances from a Christian perspective. I'm your host, Ralph, and I'm here to help you achieve financial freedom while growing in your faith.

Ralph Estep Jr.:
02:04

Now, before we dive into the meat of today's topic, let's turn to the good book for some wisdom. The book of Proverbs 22:1 tells us this: “A good name is more desirable than great riches. To be esteemed is better than silver or gold.” Now, this verse is talking about our reputation. We can also apply it to our financial reputation, namely our credit. Just like a good name, good credit can open doors and create opportunities.

Ralph Estep Jr.:
02:41

All right. Well, let's get into it today. We're going to explore seven financial perks of maintaining great credit. How it can save you money and conversely, how poor credit can cost you. So grab your notepads folks, because this is information you don't want to miss. Well, let's start with perk number one, and that's lower interest rates on loans and credit cards. Here's the deal, my friends, when you have great credit, lenders see you as a low-risk borrower. And what do they do for low-risk borrowers? They offer lower interest rates. It's like getting a VIP discount on borrowed money. So, let me break it down with a real-life simple example.

Ralph Estep Jr.:
03:17

Let's say you're buying a $200,000 home with a 30-year mortgage. If you have excellent credit, you might qualify for an interest rate of three and a half percent. But if your credit's not so great that rate jumps to five and a half percent or even higher. Now these numbers may seem like. Like a, not a big deal, but let's do the math. So on a $200,000 loan a difference between three and a half percent. And five and a half percent interest over 30 years is drum roll, please. Over $80,000. That's right folks, poor credit could cost you the price of a luxury car or even your kid's college education. It's like throwing money out the window.

Ralph Estep Jr.:
03:55

The same principle applies to credit cards, personal loans and even auto loans. Better credit equals lower interest rates, which means more money staying in your pocket. Now listen, when I was running a credit union, we would offer a really low rates to our best credit union members and higher rates for those with not-so-great credit. These could range from as low as 5% to as high as 18%.

Ralph Estep Jr.:
04:17

Let's move on to perk number two. And that's higher chances of loan and credit card approval. You know that feeling when you really need a loan or you need a new credit card, you're nervously waiting to see if you're approved well with great credit, you can breathe a little easier. Lenders are much more likely to approve your applications when they see a history of responsible credit use.

Ralph Estep Jr.:
04:37

This doesn't just make the process less stressful; it can also save you money. You might be asking how well, when you're desperate for a loan and keep getting rejected, you might turn to less reputable lenders who charge sky high interest rates. But with good credit, you have more options, and you can choose the best deals. Good credit puts you in the driver's seat. where bad credit might just put you in the trunk.

Ralph Estep Jr.:
05:00

So moving on to perk number three and that's higher credit limits. Now I want to be clear here. I'm not advocating for running up huge credit card balances. It's a one-way ticket to financial trouble but having higher credit limits can actually be beneficial. Even if you don't use them, you see one factor in your credit score is your credit utilization ratio. That's the amount of credit you're using compared to the total available credit. The lower this ratio, the better for your credit score. You have higher limits but keep your spending the same. Your utilization ratio goes down, potentially boosting your score even further. Plus. In cases of emergencies having that extra available credit can provide a huge safety net. Just remember, it's there for emergencies, not for splurging on that new, big TV or that trip to Fiji.

Ralph Estep Jr.:
05:47

Let's move on to number four and that's better insurance rates. But this one might surprise you: Did you know that in many states insurance companies can use your credit score to determine your insurance premiums? It's true. They found that people with higher credit scores tend to file fewer claims, so they reward them with lower rates on their insurance. This applies to auto insurance, homeowners, insurance, and even life insurance. In some cases by maintaining great credit, you could be saving hundreds of dollars a year on your insurance premiums. It's like getting a discount for being financially responsible.

Ralph Estep Jr.:
05:50

Now let's look at perk number five, and that's no security deposits on utilities. Now here's a perk that can put money back in your pocket right away. When you're setting up a new utility service, think electricity, water, gas, internet, whatever those things are. Companies often require a security deposit. If you have poor credit, this deposit can be hundreds of dollars that you have to pay up front. This even works if you're looking for a new cell phone plan, but guess what?

Ralph Estep Jr.:
06:47

If you have great credit, many utility companies will waive this deposit altogether. That's the money you get to keep in your bank account instead of tying it up with the utility company. And let me tell you, when you're moving to a new place and have a lot of expenses every little bit helps. I know one town here in Delaware, they charged $350 for a deposit for electricity if you have poor credit.

Ralph Estep Jr.:
07:09

Well let's look at perk number six and that's better rental options. For all you renters out there, listen up: Landlords love tenants with great credit. Why? Because it shows them you have a history of paying your bills on time. This can give you an edge in the competitive rental markets, potentially allowing you to snag that dream apartment or house.

Ralph Estep Jr.:
07:27

But it's not just about getting approved. Some landlords might be willing to negotiate on rent or security deposits for tenants with excellent credit. Again, it's all about being seen as a low-risk, reliable tenant that they don't have to be bothered with. And for those of you dreaming of home ownership, great credit can help you there too. It can make a difference between being approved for a mortgage or not. And as we discussed earlier, it can save you a ton of money in interest over the life of your loan. Remember, $80,000 was saved in that 30-year, $200,000 loan with only a 2% difference.

Ralph Estep Jr.:
07:59

And finally, last but not least, perk number seven, it can give you better job prospects. But this last one might be a bit controversial, but it's important to know some employers, particularly those in the financial sector or for positions that handle money, may check your credit as part of the background check process. They're not looking at your credit score. But they're looking at your overall credit report. They want to see if you have a history of financial responsibility. Now I'm not saying this is fair and it should be done, but it's a reality in some industries. So maintaining great credit could potentially give you an edge in your career. It's not just about money, it's about opportunities.

Ralph Estep Jr.:
08:36

Now, Kim, I hope this gives you a clear picture of how great credit can benefit you financially, but let's flip the script for a moment. Let's talk about how poor credit can cost you money. First and foremost, as we discussed, poor credit means higher interest rates on loans, on credit cards, on all those things. That can cost you tens of thousands of dollars over your life. It's like paying a penalty on every dollar you borrow. Poor credit can also lead to denied loan applications, forcing you to either postpone important purchases or seek out high interest alternatives like payday loans.

Ralph Estep Jr.:
09:10

These can trap you in a cycle of debt that's truly hard to escape. You might have to pay security deposits on utilities and have fewer options when it comes to renting or buying a home. All of these add up to more money out of your pocket. But here's the good news Kim, and this goes for all of our listeners out there: credit scores can be improved. It takes time, it takes discipline, but it's absolutely doable. So here's some actionable steps you can take. If you're a regular listener, this is going to be a bit of a refresher, but it's very useful information.

Ralph Estep Jr.:
09:44

Number one: Pay all your bills on time, every time. Set up automatic payments if you need to. Number two: Keep your credit balances low, try to use no more than 30% of your available credit. That's that credit utilization we talked about. Number three: Don't close old credit cards. Even if you're not using them, the length of your credit history matters. Number four: Be cautious about opening new credit accounts, only do so when necessary This is where you want to have a plan of borrowing.

Ralph Estep Jr.:
10:14

Number five: Regularly check your credit report for errors and disputes. Any inaccuracies you find, get that credit report, look at it, study it, fix it. Make sure there's nothing on there that's wrong. Number six: If you're really struggling, consider talking to a credit counselor. Many nonprofit organizations offer this service for free or at a very low cost. I did a show on that a couple of weeks ago. Remember this: Improving your credit is a marathon, it's not a sprint. You got to be patient. You got to stay consistent, and you truly will see results.

Ralph Estep Jr.:
10:45

So let's recap what we've learned today. Great credit can save you money through lower interest rates on loans and credit cards. It increases your chances of loan and credit card approval. You get higher credit limits which can further boost your score. Better credit often means lower insurance premiums. You can also avoid those security deposits on utilities. Great credit gives you better and more rental options and it might even give you an edge in your job search. Now on the flip side, like we talked about, poor credit can cost you in all these areas, potentially add up to tens of thousands of dollars over your lifetime.

Ralph Estep Jr.:
11:19

Now, before we wrap up, I want to remind you that tomorrow's show will be tackling a topic that strikes fear into the hearts of many and that's how to handle getting audited by the IRS. Trust me, you don't want to miss it. And hey, if you're enjoying the show and finding it helpful, why not share with a friend or family member who could benefit from this information?

Ralph Estep Jr.:
11:37

Remember, at the Ask Ralph Show, our goal is to answer your questions and help you master your finances from a Christian perspective. Speaking of questions, keep them coming in. Your questions are the heart of the show. You can submit them through our website at askralph.com. And while you're there why not join our community? When you sign up for our email list, you'll get a free copy of my book, “Mastering Your Finances.” Now, this normally sells for 10 bucks on Amazon, but for joining our community, it's yours for absolutely free.

Ralph Estep Jr.:
12:05

Alright folks, that's all we have for today. Remember, good credit is like a superpower in your financial life. Use it wisely and it can open doors and save you money. But most importantly remember this: Your worth is not determined by a three-digit credit score. As it says in Colossians 3:23, “Whatever you do, work at it with all your heart, as working for the Lord, not for human masters.” Well, thank you for tuning into the Ask Ralph Show. As I always say, stay financially savvy, and God bless you.