Everybody wants to have a good credit score. Your credit history affects your financial life significantly. It represents your creditworthiness whenever you apply for a loan. Did you know that the benefits of having good credit go beyond loan and credit card approval? You’ll get better car insurance and mortgage interest rates. You’ll find it easy to look for a job or a new home. You’ll have higher credit limits, lower security deposits, and more bargaining power.
What Are the Benefits of Good Credit Score?
The strength of your credit score will have a significant effect on your financial health. What does good credit do for you? Here are a few benefits of good credit that you need to know.
1. Get Approved For A Loan Fast
If you’ve had a poor credit rating in the past, you know how difficult it is to get a new credit card or loan. If you managed to improve your credit standing and you now have a good score, you can apply for a new loan or credit card with confidence. You can expect the outcome to be more favorable since you’re already a low-risk borrower.
Having a good score gives you access to the best rewards credit cards like Alliant Visa® Signature Credit Card for cash backs, American Express’ Blue Cash Preferred Card for groceries, and Chase Sapphire Reserve for luxury travel. Credit card companies, such as Capital One, also offer incentives like invitations to special events to users with good credit scores.
2. Enjoy Favorable Car Insurance Premiums
Insurance firms also take into account your credit score when deciding on your insurance rate. They will check your credit history to determine if you can pay your insurance premiums. If you have a high credit score, you pose lower risks to insurers, resulting in more affordable insurance rates.
3. Enjoy Low Mortgage Interest Rates
You have to borrow a significant amount of cash to purchase a home and you must look for a loan that comes with the lowest interest rate possible. Having a good credit score makes you a low-risk borrower. Since you’re less likely to default on your loan, lenders will give you an affordable interest rate, which translates to significant savings throughout the loan term.
Meanwhile, you still have to pay for private mortgage insurance even if you have a good credit score. The mortgage insurance premium rate you need to pay is lower than those with poor credit. You can avoid paying for mortgage insurance if you put in at least a 20% down payment, take out a government-insured home loan, or the loan-to-home-value ratio is at 80%.
4. Move To A New Apartment Fast
Did you know that having a good credit score can make a huge difference when you’re trying to look for a new apartment? Landlords may conduct a credit check when assessing a potential renter. If there are other people who want to rent the apartment you’re eyeing, a good credit score will help you win over the landlord. Of course, you’ll have higher chances of getting a rental apartment than your competitors if you have an excellent credit score.
5. Land Your Dream Job
When applying for a new job, employers don’t just check your cover letter and resume. They may also take a peek at your credit report. It helps employers determine how good you are at managing your personal finances. Many of them believe that you can take care of high-stakes projects efficiently if you’re trustworthy when it comes to handling money. This credit check is considered a soft inquiry, which means it won’t affect your credit score.
6. Get Higher Credit Limits
Aside from getting better chances of securing a credit card loan approval, creditors may give you higher limits because your credit history shows that you can pay your loan back on time. Why do you want to have a bigger credit limit? Aside from having more cash to spend, having a high credit limit helps lower your credit utilization ratio, which can boost your credit score.
7. Less Or No Security Deposit Required
Gone are the days when you have to pay a security deposit when getting a cell phone on contract. A good credit score is enough to waive the security deposit. Aside from that, you may also enjoy a discounted purchase price when looking to buy a phone.
Having a good credit score may also come in handy if you’re relocating and you need to install or transfer a utility service at your new place. Just like taking out a new cell phone contract, you don’t have to pay a security deposit on utilities.
8. Get The Upper Hand When Negotiating A Deal
You have more negotiating power if you have a good credit score. Let’s say you’re trying to take out personal loans for your home improvement project. You can negotiate a better interest rate and loan term with the lender thanks to your good credit standing. Lenders, banks, and creditors will most likely approve your requests because your credit history shows you’re a low-risk borrower.
You can also use your good credit score to negotiate a better credit card interest rate and higher credit limit. You may also apply for a new card that offers lower interest rate, higher credit limit, and lower APR to those with good credit scores.
Understanding the Basics of Credit Scores
Credit reporting agencies, such as Experian, Equifax, and TransUnion, calculate your credit scores. There are different types of credit scores and the most commonly used ones are VantageScores or FICO scores. Credit scores range from 300 to 850. What’s considered a good credit score depends on the kind of scoring system used. For FICO Score, a good credit rating ranges from 670 to 739 while it’s 661-780 for VantageScore. Here’s a table for a quick comparison:
You’ll enjoy many benefits, such as better chances of securing a loan approval if you have a credit score. However, if it’s poor, you’ll find it difficult to get new credit, and you’ll most likely be required to pay higher interest rates.
Why Is it Important to Have a Good Credit Score?
Credit scores play a crucial role in our financial life. You can use a good credit score as leverage to get great deals when applying for a loan, buying a car or home, and even when looking for an apartment.
How Can You Improve Your Credit Score?
Don’t worry if you currently have a poor credit score. You can improve your credit standing over time by becoming a responsible borrower. Here are some tips to help you rebuild your credit.
1. Make Timely Payments
Always pay your bills on time. Remember that your payment history accounts for 35% of your FICO score. Paying off your debt promptly will show up on your payment record, which will eventually help boost your credit score. Keep track of your bills, set due-date alerts, or sign up for automatic payments so that you can avoid late or missed payments.
2. Keep Your Credit Usage Below 30%
Credit usage makes up 30% of your credit score. If you want to improve your credit standing, you should keep your credit utilization ratio below 30%. Make it a habit to pay your credit card balances in full every month. You can also ask for a higher credit limit. Just make sure that you don’t increase your card balance, too.
3. Apply For New Credit Only When Necessary
Applying for a new credit card, an auto loan, or a mortgage triggers a hard inquiry into your credit history. It affects your credit score negatively, and its impact may last from a few months to several years. You have to limit your new credit application unless it’s necessary.
4. Check Your Credit Report Regularly
You need to be proactive and review your credit reports regularly. You are entitled to get one free credit report every year from the three major credit reporting agencies – Experian, Equifax, and TransUnion. Check your credit reports annually to make sure that there are no errors or discrepancies.
5. Dispute Errors In Your Credit Report
One negative mark on your credit report can drag down your credit score. That’s why you need to dispute any error in your credit report right away. Watch out for mistakes, such as late or missed payments or any negative mark that should have been removed from your report.
6. Don’t Close Old Accounts
You may think that old and unused accounts aren’t worth keeping. That’s not the case. Keeping your old accounts open even if you’re not using them helps increase your available credit and decrease your credit utilization ratio. Just make sure to resolve issues like unpaid debt so that you can improve your payment history.
7. Use A Secured Credit Card
Using a secured credit card can help improve your credit score. You can still get one even if you have bad credit since this type of credit is backed by a security deposit. Don’t forget to get a secured card from a financial institution that reports your payments to the three major credit reporting agencies.
How to Build Credit If You Don’t Have a Credit History?
If you’re one of those who have no credit history, you may struggle to get approved for a loan or anything that requires credit. Don’t worry if you’re a credit newbie, there are things you can do to start building your credit so you can enjoy the benefits of having a good credit score.
- Be an authorized user of the credit card of a close friend or family member.
- Apply for a secured credit card and use it to build your credit history.
- Get a store card from gas stations, online or offline retailers.
- Use credit-building tools such as Experian Boost™ so you can get credit for paying monthly cell phone, streaming, and utility bills on time to help boost your credit.
You’ll enjoy many benefits of good credit history. It’s easy to apply for a new loan or credit card. Insurance rates, interest rates, credit limits, and loan terms are more favorable. Plus, finding a new apartment or job becomes less of a hassle. If you currently have a less-than-stellar credit score, there are steps you can take to improve it. Become a responsible borrower, and you will see significant positive changes in your credit standing over time.