7 Benefits of Good Credit: Why a High Credit Score Matters
-
Written by
Sarah Sharkey
-
Edited by
Emily Gadd
A credit score might seem like just a three-digit number. But this seemingly small number can have a big impact on your finances. Generally, a good credit score opens doors that might have slammed shut to someone with a bad credit score.
Let’s explore the benefits of having a good credit score and how to build one.
What Is Considered Good Credit?
A credit score typically ranges from 300 to 850. While a higher credit score is better, your credit score will fall into different categories using the FICO scoring model (one of the most widely used by lenders):
- Poor: Credit score less than 580
- Fair: Credit score between 580 and 669
- Good: Credit score between 670 and 739
- Very good: Credit score between 740 and 799
- Exceptional: Credit score above 800
Benefits of Good Credit for Financial Health
Take a closer look at the top benefits of a good credit score below.
1. Lower Interest Rates on Loans
Generally, lenders reward borrowers with a higher credit score with lower interest rates on their loans. For many, this opportunity is the best perk of having a higher credit score. When you lock in a lower interest rate, you can save money on your loan. Depending on the size of the purchase and the interest rate differences, you could enjoy significant savings.
For example, let’s say Sally finances a vehicle purchase with a $40,000 loan over 60 months with a 5% interest rate. She’ll face a monthly payment of $754.85 and pay $5,290 in interest over the loan term.
In contrast, suppose Sam’s bad credit score gets him a 7% interest rate. He’ll pay $792.05 per month and pay $7,522.88 over the loan term. Not only will Sally’s credit score allow her to lock in a lower payment, but it also saves her thousands over the loan term.
2. Better Approval Chances for Loans and Credit Cards
Most lenders prefer to work with good-credit borrowers. With that, borrowers with good credit enjoy better approval chances on most loans and credit cards.
For example, if you plan to buy a house with a mortgage, you are more likely to get approved for the loan when you have a good credit score.
3. More Access to High-Quality Financial Products
High-quality financial products, such as premium travel rewards credit cards, are typically reserved for those with a good credit score or better.
These cards often come with better perks, including valuable rewards points, travel insurance and built-in purchase protection.
4. Improved Job Prospects
Employers in some states can review your credit report as part of the application process. In most fields, a credit check isn’t required to get a job. But in certain industries, such as financial services or government work, you might have to clear a credit check before the employer will hire you.
For those with bad credit, this could take your name out of the running for a position. While good credit likely won’t land you a job, having a good credit score likely won’t hurt your chances of getting hired.
5. Getting Approved To Rent a Home
If you want to rent a place to call home, many landlords will run a credit check. After all, your credit score reflects how diligently you maintain your financial obligations.
Since your landlord wants to receive regular rent payments, a bad credit score could lead them to deny your application.
Unfortunately, a bad credit score could make it challenging to find a nice place to live.
6. Better Insurance Rates
Many insurance companies consider your credit-based score when determining your monthly premiums.
Generally, a higher credit score leads to a lower insurance premium, if your state allows insurers to consider your credit.
7. Avoid Utility Deposits
When setting up utilities, some utility companies look at your credit score before requiring a deposit.
If you have a good credit score, the utility company might let you skip the deposit. But if you have a bad credit score, you might face a relatively hefty deposit requirement before your services are turned on.
Common Misconceptions About Good Credit
Regardless of where you are starting from, improving your credit score can give your financial situation a boost. As you start building credit, it’s important to get clear on the facts. We clear up some common misconceptions about obtaining good credit below:
- Checking your credit hurts your score: False. In reality, checking your credit score gives you a better idea of where you are starting from and the action won’t hurt your credit score.
- Carrying a balance boosts your score: False. Carrying a balance on your credit card could end up hurting your credit score. When possible, pay off your credit card balance in full each month.
- Income impacts your credit score: False. Your income doesn’t directly impact your credit score. But having a higher income might help you better manage your finances in pursuit of a better credit score.
As you look to build credit, commit to making on-time payments. With consistent on-time payments to your credit accounts, your credit score will likely rise over time.
Bottom Line
A good credit score has far-reaching impacts across your life. This three-digit number can impact everything from landing a job to your housing situation.
Plus, the right credit score can help you gain access to better interest rates and financial products, which stretch your dollars further.
Frequently Asked Questions About Good Credit
Can good credit impact your life in ways other than loans?
Beyond access to better loan opportunities, good credit can help you land a nice apartment, land a job and pay less on insurance premiums.
What is the quickest way to improve your credit score?
The quickest way to improve your credit score is to commit to making on-time payments across all credit accounts. As you build a history of on-time payments, your credit score will likely rise.
How can a person with poor credit turn things around?
People with poor credit can turn things around by sticking with on-time payments for all credit accounts and paying down any high-interest debt to stabilize their financial situation.
