ELFI Credit Series: Why Maintenance Matters for Credit

Updated January 28, 2022

Once you establish credit, it’s time to go into maintenance mode. Good credit won’t sustain itself without your attention, and you need it for just about every life milestone.

Not convinced? Let’s go through a sample life trajectory to see how good credit comes in handy at nearly every turn, from getting a car loan and a good auto insurance rate to obtaining a mortgage and refinancing student loans.

Learn More: Don’t Just Build Good Credit — Maintain It

Buying a car

Let’s start at age 25. You’ve just finished up grad school and landed your first professional job. But there’s one problem: It requires a commute, and you need to buy a car. You don’t have enough saved to pay cash, so an auto loan it is. Credit determines your borrowing rate.

As the owner of a new car, you’ll also need car insurance. And — surprise! — credit is a factor insurers consider when they set premiums. They use FICO insurance scores, which are different than FICO credit scores but are still credit-based. These scores are a predictor of the risk you pose to insurance companies, according to FICO.

Refinancing student loans

You start the job with your new set of wheels, and it’s going along swimmingly. But now, your student loan grace period is ending. After years of deferring the debt during college, it’s finally time to face it — and all the interest that has accumulated.

You owe a total of $75,000 in student loan debt with a 6% interest rate. On a 10-year repayment timeline, your monthly payment will total $833.

After researching all your options — income-driven repayment, Public Service Loan Forgiveness, just buckling down and paying it — you decide that refinancing the student loan debt makes the most sense.

To refinance your student loans with ELFI, you must have a minimum credit score of 680, and your credit score can help determine your rate.* Assuming you stay on a 10-year repayment schedule but lower your rate to 4%, your monthly payment would drop to $759, saving you $74/month.

But of course, the lowest rates require the best credit. Shopping around will help you find the lowest possible rate you qualify for, but too many hard pulls on your credit could hurt you. To maintain your credit while comparing rates, stick to lenders that can prequalify you with a soft credit pull, so there’s no ding to your score.

To see how much you could save by refinancing with ELFI, check out our Student Loan Refinance Calculator.*

Buying a house

Time passes. You’ve been renting apartments for a few years (with no problems ever renting a place because landlords love your good credit). But you can’t help thinking about how you’ve been diligently paying rent for years with no wealth to show for it. Maybe it’s time to think about investing in a place of your own.

You keep paying down your student loan debt, slowly socking away the money you saved from refinancing. Before long, there’s enough for a down payment.

Mortgage shopping begins. Like rates for auto loans and student loan refinancing, home loan rates are credit-based. Now, credit matters more than ever: Your mortgage is likely the biggest debt you’ll ever have, and qualifying for a rate that’s even half a point lower could save you hundreds of dollars a year.

But you also realize that credit score isn’t the only thing lenders are looking at. They also care a lot about your debt-to-income ratio. Yours might have been too high before — the maximum allowable DTI is 45% to 50%, according to guidelines from Fannie Mae. But because you have good credit and have made a dent in your student loan debt, banks are happy to help you buy your first home.

Set yourself up for success

We could go on and on. Good credit is necessary to get low rates on personal loans, qualify for the credit cards that give you the best rewards, and cosign a student loan for your child.

And speaking of kids, you can set yours up for future credit success by making them an authorized user on your credit card (at an appropriate age, of course). That way, the good credit you’ve spent a lifetime building and maintaining will give them a head start.

No matter what your (and their) goals are, proactively maintaining good credit over time will almost certainly help achieve them.

Creditworthiness is an important factor in maintaining good financial health. And if you’re considering student loan refinancing, your credit score plays an important role in securing great rates. ELFI’s prequalification process is quick, 100% online and won’t affect your credit.* Speak with one of our Personal Loan Advisors today, or see how much you could save today.*