Table of Contents
- A good credit score shows lenders, landlords, and others that you tend to handle financial obligations responsibly
- Having a good score can help you qualify for better loan terms and rates, as well as top-tier credit card rewards programs
- Good credit can also impact your insurance premiums, improve your property rental and job qualifications, and exempt you from paying utility deposits
- If you maintain a good credit score, you could save thousands in interest over a lifetime
Your credit scores are a key metric lenders use to evaluate your borrowing potential — but they’re much more. A good credit score can grant you not only better loan terms but a host of other benefits.
Although there are different scoring models, most creditors consider a good credit score to be at least 670 on a scale of 300 to 850. Having a high score shows lenders and others that you tend to handle your debt and other financial obligations responsibly. It takes time and effort to get to that level, but it’s undoubtedly worth it. Here’s a deeper look at the value of a good credit score.
Advantages Of Having A Good Credit Score
According to data from the Consumer Financial Protection Bureau (CFPB), around 53% of American adults have good or excellent credit scores. If you fall into that half of the adult population, you can take advantage of several financial benefits.
Lower Interest Rates
The most immediate benefit of a good credit score is that it unlocks lower interest rates on many types of loans and credit cards. For instance, the CFPB reports that consumers with fair credit scores pay an average credit card APR of 20%, while those with the top scores pay only 9%. Similar benefits come with auto loans, mortgages, and other types of debt, and these lower rates can translate to extensive savings in the long run.
Higher Credit Card And Loan Limits
Good credit scores do more than simply qualify you for loans. They often result in approval for higher credit limits on credit cards and larger loan amounts from banks. Your income and other debts also play a role, and those higher limits and loan amounts may mean you can afford a larger house, buy a nicer car, or gain more flexibility in credit card spending.
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Better Credit Card Rewards
Some top-tier rewards cards are reserved for borrowers with good or excellent credit. These cards offer significantly better perks in the form of higher cashback rates, extra points on travel, and large sign-up bonuses. Many even include exclusive access to hotel rewards programs and airline lounges.
Better Rates On Insurance
Lenders aren’t the only companies that use your credit scores to evaluate your risk level. Insurers may use credit scores to determine premiums and coverage decisions. One Forbes Advisor study indicated that those with poor credit paid 76% more for car insurance than those with good credit. Your credit scores can also impact other insurance premiums, such as homeowners coverage, but state laws vary as to how insurers can use credit scores to determine rates.
Expanded Rental Housing Options
Landlords often check your credit history when you apply for a lease, as they want to gauge how likely you are to pay the rent. That means a good credit score can improve your chances of renting a house or apartment. Again, laws vary by state, and your credit score isn’t the only factor your landlord will consider, but a strong score will only help your chances.
Easier Utility and Cell Phone Services Setup
Utility companies and cell phone providers also frequently run credit checks for new customers. While they won’t deny you service based on your credit score, they may require a security deposit or put you on a prepaid plan. Having a good credit score can help you avoid these upfront costs.
Positive Impression On Employers
Employers in some states are allowed to check a limited version of your credit report when reviewing your job application. They can’t access your credit scores, but they still see much of the information used to calculate your score. If you have a good credit score, it means the information in your report will be more favorable if your potential employer chooses to review it.
The benefits of a good credit score extend beyond favorable loan terms. It serves as a financial passport, opening doors to lower interest rates, higher credit limits, and access to premium credit cards with rewards. This can amount to significant monetary savings over time. It’s a testament to the power of responsible credit management and its tangible benefits in various aspects of your financial life.
Broader Financial Impact Of Having Good Credit
The benefits of a good credit score aren’t isolated to individual financial perks. Over the course of a lifetime, a good score can radically affect your financial trajectory. Consider the cumulative impact of the following:
- On a $350,000 mortgage, a high credit score can save you $86,065 in interest over the life of the loan compared to lower scores.
- A higher score can save you $3,251 in interest on a five-year, $41,000 auto loan.
- You could save $885 in interest on a three-year, $10,000 personal loan with a high credit score.
With these interest savings, you can direct your resources toward more important financial goals, such as building an emergency savings account, investing in your retirement, or setting aside money for college. Ultimately, a higher credit score can open the door to a different level of financial freedom.
The impact of a good credit score is both immediate and long-term. In the short term, it offers better rates and terms on loans and credit. But more importantly, over a lifetime, it translates into substantial savings in interest payments. This financial leverage can then be redirected towards other important financial goals, like retirement savings or investments, underlining the broader impact of a good credit score on your overall financial trajectory.
How To Build A Good Credit Score
With so much to gain by having a good credit score, you may wonder what it takes to get there. Credit-scoring models weigh a variety of factors to determine your score, and your numbers can fluctuate depending on the model and credit report used.
Regardless of those details, the basics of building good credit are simple: Practicing good borrowing habits like paying your bills on time and in full, maintaining low credit card balances, and keeping long-standing accounts open will help you gradually build a good credit score. The longer you stick with these habits, the easier it will be to maintain a good credit score — and reap the long-term rewards.
Building a good credit score is a journey that involves consistent and disciplined financial habits. Timely bill payments, low credit utilization, and maintaining older credit accounts are simple practices. It’s not just about hitting a numerical target; it’s about cultivating habits that ensure long-term financial health and stability. The effort to build and maintain a good credit score is an investment in your financial future.
Frequently Asked Questions (FAQs)
Does It Matter What Your Credit Score Is?
Yes, your credit score has a significant impact on your ability to borrow money, secure lower insurance premiums, and qualify for property rentals. However, if you have a low score, you can still find ways to borrow money and rebuild your credit score over time.
What Is The Average Credit Score?
According to Experian, the average FICO credit score in the U.S. is 716 as of the second quarter of 2023.
Do Credit Scores Vary By Age?
Yes, credit scores tend to improve with age as consumers open more accounts and practice good habits over a longer period. The average Gen Z borrower has a FICO score of 679, while the average baby boomer has a score of 742.
What Matters More, Credit History Or Credit Score?
These are two sides of the same coin. Your credit history is used to calculate your credit score, and lenders may review both when checking your credit.
Find out more
- What is Credit Monitoring? – Learn how credit monitoring can safeguard your financial well-being.
- What is Credit Repair? – An introduction to the fundamentals of credit repair.
- What is the Lowest Credit Score? – Understand the implications of having the lowest possible credit score.
- Understanding Credit Repair Cost – Navigate the financial aspects of credit repair services.
- Removing Old Names and Addresses from Credit Report – How to ensure your credit report is current and accurate.
- Soft vs Hard Credit Checks: What You Need to Know – Clarifying the effects of different types of credit inquiries.
- Tips for Comparing Credit Repair Companies – Guidance on how to choose the best credit repair company for your situation.
- What Affects Credit Score? – Identify and understand the factors that impact your credit score.
