I want to be debt-free. Should I care about my credit score?

Being debt-free is a big and courageous goal with a lot of questions to figure out. One such question is how much thought and effort to put into maintaining your credit score. Some folks, like Dave Ramsey, advocate that if you’re completely cutting debt from your life, your credit score no longer matters. Here are some considerations to help you decide where building credit falls on your priorities list.

Credit score for debt consolidation

Debt consolidation is a strategy that helps borrowers simplify repayment and (typically) save on interest by combining multiple high-interest loans, like credit cards, into one lower-interest loan, usually a personal loan. It’s not for everyone, but it can be a helpful tool in getting out of debt.

To access debt consolidation, you’ll need a decent credit score. So if you’re considering consolidation as part of your strategy, it’s a good idea to try to boost your score before applying.

Non-financial uses for credit scores

Your credit score can come into play in a few ways you might not expect. For example, many landlords will run a credit check when you apply to rent an apartment. Insurance carriers can also check your credit when deciding whether to cover you and at what price. Whether you’re debt-free or not, these can be situations where you want your score to be the best it can be.

Are you really done with debt?

What exactly does “debt-free” mean to you? For some, the focus is mainly credit card debt. Others are seeking to close their credit cards, pay off their mortgage, and never use any type of loan again. While that’s a great goal, it’s okay if that’s not realistic for you. In fact, only 23% of American households are mortgage-free homeowners.¹

Remember that lenders use your credit score when determining what rate to offer you on your next mortgage, auto loan, or personal loan. A low score could cost you by way of a higher interest rate later.

Credit for parents

You may also want to consider, even if you personally are working towards debt freedom, whether that might change if you’re a parent. If you would want to co-sign a student loan or other loan for your child, having a great score puts you both in a better position.

Be ready for future opportunities

Let’s say 20 years into the future you’re living your best-debt free life… then the opportunity arises to start a business or buy a vacation home or *insert your dream here*. Would you consider taking a low-interest loan to make it happen?

If so, then you probably should invest some energy into maintaining your credit score. If you’re confident that you still wouldn't consider borrowing for any reason, then your time is better spent on other aspects of your financial journey.

The good news? Continuing to make on-time payments and reducing your balances will support your score while you’re on the path to reducing your overall debt. For tips personalized to you and your credit report, login to Payoff Genius Pro today!

¹ https://www.forbes.com/sites/johnwake/2023/03/31/us-has-3rd-lowest-percentage-of-households-that-own-their-homes-without-mortgages/