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.
Don’t believe us? 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. How does that work, though? Let’s break it down.
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! Now, do you understand the benefit of having a good credit score?!
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, to access the Platinum Card from American Express (which comes with a nearly $700 annual fee), you need to have excellent credit. However, when you spend with the card, you get the chance to earn 5x rewards on top of luxury travel benefits and elite status with Hilton and Marriott.
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!
Improve Your Credit with the Cheese Credit Builder
Are you convinced of the benefits of having a good credit score? Great! Now, if your score isn’t “good,” then don’t worry. You can work to, little by little, build that score. How? We’re introducing a credit builder feature within the Cheese app.
This feature will help you track your purchases and monitor your score so that you can adjust your spending habits and build your credit. Join the waitlist to be one of the first users to get access to the credit builder function once it’s launched.
