The other day, I read a couple of frightening statistics. In an article in CNNMoney, the statistics quoted that nearly 75% of Americans were living paycheck to paycheck and that more than 25% of Americans had no savings to fall back on in the event of an emergency. These statistics are frightening because having savings available is essential to maintaining a good credit score, which is important because your credit score affects many different areas of your life. Here are some of the reasons why having savings available is so important.
Paying Bills On Time
Having savings available increases the chances that you will be able to pay all of your bills on time and in full. In the event that there is a temporary hiccup in your finances, the savings can be used to cover the gap between the amount of money you have and the amount of money you need to pay all of your bills. Your bill payment history is a significant part of your credit score calculation and every late or missed payment has the ability to decrease your credit score by a considerable amount. It is recommended to have a savings amount available in an emergency savings account equal to three months of regular monthly expenses in case of a job loss or an illness that leaves you unable to work for a period of time.
Paying For Unexpected Expenses
Life is uncertain and unexpected expenses can arise at any time, so it is best to be as prepared for them as you can be. People that do not have savings available often have to rely on credit cards and short-term loans with excessive interest rates when these unexpected expenses arise. If they are unable to pay off this use of credit with their next paycheck, there is a good chance that they will carry the balance for a while, paying interest month after month until the amount is paid off.
The Benefits Of A Higher Credit Score
In additional to the increased chances of approval for credit products and the lower interest rates charged for those products, there are many other benefits of having a higher credit score that can also be realized. People that have credit scores on the higher end of the spectrum find it easier to be accepted for new jobs and promotions for jobs with more authority or higher security needs. They also are approved for rental homes and apartments more often because the property owner can see that they have a good track record of paying their bills on time. They may also have lower costs for insurance products and have their security deposits for utilities and cell phone service waived, saving them hundreds of dollars that those with lower credit scores must pay.
Join our newsletter
Subscribe to get the latest "Engineer Your Finances" content via email.