What Are the Benefits Of Having A Good Credit Score?
Did you know that having a good credit score could save you $41,000 over the life of a home loan? How? Your credit score largely affects the types of financial products that you can access, but it also affects the types of interest rates you get on things like loans and credit cards.
Simply put, the better your credit score, the more access you have to things like lower credit card interest rates and lots of negotiating power for things like larger mortgages. In today’s modern world, it really is your ticket to the best interest rates and savings.
Let’s walk you through the benefit of having a good credit score, whether you’re going to apply for a mortgage loan or are simply looking to snag a great credit card with some of the best rewards.
What is a Good Credit Score?
Credit scores range from 300 to 850, but what score do you need for it to be a “good” credit score? The exact number varies slightly depending on which credit scoring model you’re looking at. However, a “good” credit score for loan and credit card applications is usually one that’s over about 660-670.
To put that in context, let’s look at the two major credit scoring models and their credit ranges. We have FICO and VantageScore 3.0.
The VantageScore scoring model is as follows:
Very Poor: 300-499
Poor: 500-600
Fair: 601-660
Good: 661-780
Excellent: 781-850
And, here are FICO’s credit score ranges:
Poor: 300-579
Fair: 580-669
Good: 670-739
Very Good: 740-799
Excellent: 800-850
As a rule of thumb, if you’re looking to be safe, aim for a credit score of 750 and up as that’s where you start to get access to the best loan rates and all of the best rewards credit cards.
What Are the Benefits of Having a Good Credit Score?
Access to the Best Interest Rates
As we mentioned at the start of this article, having a good credit score could save you up to $60,000 over the life of a home loan.
To set the stage, let’s assume that you’re looking to apply for a 30-year fixed-rate mortgage loan and you need $200,000. If you have a good credit score, about 750, for example, a mortgage lender could give you a better interest rate. Let’s say it’s 3.3% over the lifetime of your loan. This means that you’d be paying $877 a month in payments.
Now, let’s say that you don’t have a good credit score. Maybe it’s about 620. The mortgage lender likely won’t give you the same interest rate. They might, instead, offer you the same loan at 4.87%. While that might not sound like a big jump, your monthly payments would now be $1,061.
This means, though, that over the entire lifetime of the loan (30 years), you’d save a whopping total of $66,343!
And this applies to rates for other products as well. A higher credit score can get you access to better rates on car insurance, auto loans, personal loans and so on. But note that a good or excellent credit score is not a guarantee. Qualifying also depends on other factors of your credit worthiness, such as your debt, credit history and income.
High-Limit Credit Cards
While your credit card limit isn’t solely determined by your credit score, it’s one of the major influencing factors. Credit card companies will look at your credit score and your income to determine your credit limit. And while your income is just as important, if you don’t have a good credit score, it’s almost 100% certain you won’t get a high limit.
Why does this matter? High-limit credit cards are usually the ones with the best rewards. For example, the Platinum Card from American Express brings you the chance to earn 5x rewards on top of luxury travel benefits and elite status with Hilton and Marriott, but to access the card (which comes with a nearly $695 annual fee), you need to have excellent credit (over 700); the average applicant has a score of 715.
Easier to Rent an Apartment
If you are considering renting a house or an apartment, be aware to get your credit score prepared. A good credit score can show the landlords or property managers that you are a trustworthy tenant who won’t miss payments. Therefore, having a good credit score is offering you more housing choices. In addition, it also gets you less deposit amounts.
Negotiating Power
Whether you’re taking out an auto loan, applying for a personal loan, or are trying to increase your credit card limit, having a good credit score gives you a lot of negotiating power. When you have a good credit score, you’re showing lenders and card issuers that you are a responsible borrower.
This means that, if you want to increase your credit limit or apply for a new card, most lenders are going to jump at the chance to provide you with a great offer or some other perks. And, as we pointed out above with the mortgage loan example, you’re able to negotiate much lower interest rates when you have a good credit score. The ability to save tens of thousands of dollars simply by negotiating a lower interest rate on a loan is perhaps one of the best benefits of having a good credit score. Think of it like a reward for being so financially responsible!
7 Ways to Improve Your Credit Score
Are you convinced of the benefits of having a good credit score? Great! Now, if your score isn’t “good,” don’t worry. You can work to, little by little, build that score. Here’re some ways to help you build your credit.
- Don’t miss payments. Payments for loans or credit cards that are late for more than 30 days will be reported to the credit bureaus, which will negatively impact your credit score.
- Don’t apply for new accounts too often. Mostly when you apply for a new credit account, there will be a hard pull on your credit report. Although one hard inquiry doesn’t drastically change your credit score, many hard inquiries in a short period do.
- Keep your old accounts open. Your credit history plays an important role in your credit score, so try not to close your old credit accounts even though you are not using them.
- Lower your credit utilization to 30% or less. The easiest way is to keep your credit card balance below 30% or less of your total credit limit.
- Apply for higher credit limits. This shares the same logic as the last one. When you have higher credit limits but your balance stays the same, you can lower your credit utilization.
- Monitor your credit constantly. Many banks offer free credit monitoring services to their customers; some companies also specialize in credit monitoring and offering credit score suggestions. Know well about how your credit score changes so that you can find the right solutions,
- Diversify your credit mix. Having a new type of credit in good standing is helpful, since credit mix accounts for 10% of your credit score. If you only have credit cards (revolving credit accounts), credit builder loans (installment credit accounts) can be a good option. The lenders will report your on-time payments every month to the credit bureaus, which will positively affect your credit.
If you are considering a credit builder loan, Cheese can help! We are dedicated to creating a simple, automatic, and worry-free credit-building solution, for everyone indeed. Sign up here to start building your credit today.
