Why Credit is Important

No matter how good you may be with money, a potential lender, landlord or even future employer won’t see your budgeting strategy or emergency savings fund. But they may consider your credit report. And, in order to have a credit report, you need to have credit history.

That’s because your credit history encapsulates your financial reputation, showing others whether you’re responsible with money. Your credit history may be a factor in everything from applying for an apartment rental, getting a car loan or being approved for a mortgage. That’s why it’s important to build credit.

If you don’t yet have a credit history, or are recovering from a financial misstep, a smart way to build a credit history can be with a secured credit card. A secured credit card, like the Discover it® Secured card, is one way to build credit with responsible use while also taking advantage of the rewards and other features and benefits offered by unsecured cards.¹

Why is it important to have a good credit score?

A good credit score indicates responsible credit use, and it helps lenders determine how likely you are to pay back a loan. But your credit score and history are not just important for obtaining a loan. There are many situations where your credit score or credit history determine how likely you are to be approved.

Credit can make it easier to apply for housing

If you’re renting an apartment or house, especially in a competitive and crowded market, your landlord may check your credit score before offering a lease. A good credit score can show that you’re responsible with paying bills on time—very important to a landlord who’s expecting a monthly rent check.

Credit can help you secure loans

Whether it’s a mortgage or car loan, your credit can be one factor in determining how much of a risk you are to the lender, and how likely you are to pay back the loan. Building credit history with a secured credit card can be a smart step to working on your credit score and proving you’re a good candidate for a loan.

A good credit score can qualify you for lower interest

Your credit score is an important factor in the interest rate you qualify for, because someone with a good credit score is less risky to lend money to. When you have a low credit score, a lender may charge a higher interest rate to offset the risk. Whether you’re applying for a credit card or a loan, a lower credit score can mean you’ll get a lower interest rate than someone with a high credit score.

Certain contracts require credit

Even if you’re planning to pay for that smartphone with money in your bank account, you still may be subject to a credit check when signing up for a new cell phone plan or contract. That’s because the mobile provider wants to make sure that you will pay your bills on time.

Additionally, when it comes to renting a car, you may need to use a credit card as a form of payment, rather than a debit card or cash. While there are some exceptions, car rental companies do this because—you guessed it—they want to make sure that they are protected if the car gets damaged or you fail to return it. It may be possible to rent a car with a secured credit card, depending on your credit limit.

Some jobs require credit checks

In some cases, employers may check your credit. While they can’t see your credit score, they can see your debt and repayment history. You will receive a written notification that your credit will be checked, and you have the option to deny the request, but having good credit is likely to be important for getting the job.

Credit cards may help with some types of fraud

Using a credit card can be a real asset while shopping. If your card is used for an unauthorized purchase, some credit card issuers will not hold you liable for the charge. If you don’t receive a purchase made online, you can dispute the charge, and you may not be responsible depending on the outcome of the investigation.

Credit cards let you earn rewards

With a cash back rewards card, you can earn cash back when you spend on everyday purchases. For example, the Discover it® Secured Credit Card offers 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, as well as 1% cash back on all other purchases.²

The importance of credit history for your credit score

Credit usage is reported to credit bureaus once a month, which means that several months of responsible credit card usage can help you establish credit history. Credit of all forms can not only help you build good financial habits for the future, but a solid credit history can be an important tool to help you accomplish whatever goals you may have.