Why Cash Only Hurts Your Credit Score

May 21st, 2014

Mortgage and credit conceptWhy Cash Only Hurts Your Credit Score

As we’ve mentioned, there’s been an increase in cash only sales of homes. Some people believe in cash only and that using credit is a bad idea. But following that plan could hurt you in the long run.

Your credit score is partially based on your ability to manage credit. That means people want to see you using credit available to you responsibly. It’s a good strategy to use your credit cards regularly and pay off the balance every month.

But, you’re saying, I never intend to get a credit card, auto loan, student loans, a mortgage or a home equity line of credit.

Your lack of credit score can still hurt you if you’re looking for employment.

  1. Forget about a job in finance. The company will figure you don’t have a head for it if you don’t have a credit history.
  2. A low credit score is believed to negatively impact you as an employee. The perception is you’ll be too stressed and worried to be effective in your position.
  3. If you’re neck and neck with another prospective employee, and they have better credit, they’ll get the job.
  4. Employers want to hire employees who evidence that they are in it for the long haul. A solid credit score validates that perception.

Utility companies and cell phone companies check for a solid credit rating before they’ll turn on the service.

Automobile insurance companies check your credit worthiness when determining your rates and whether or not they’ll consider insuring you.

Additionally, the government has strict guidelines for cash only purchases above $10,000. A 1970 anti-money-laundering law known as the Bank Secrecy Act spells out the rules for large cash withdrawals. Banks are required to report any transaction involving at least $10,000 in cash. That includes not only withdrawals but also deposits, currency exchanges and the purchase of traveler’s checks. The law also requires banks to check identification on any transaction that would trigger a report.

And banks aren’t the only ones. If you buy a car with cash, the dealer is required to notify the government as well possibly triggering an audit.

A credit card will provide you with better protection of your purchases than a debit card. (We’re assuming here that you put your cash in a bank and have an ATM/Debit card. It’s generally a bad idea to keep cash hidden in mattresses. Although these New York students returned the $40,000 they found in a thrift store couch, you probably don’t want to count on someone returning the cash.)

So don’t be afraid of building up a credit history. Just keep to your budget and pay it off promptly, and you’ll be in great shape for anything.

And can you imagine what your credit score would be like if you took out a mortgage and paid it off right away?

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