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 is a Good Credit Score?
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.
Here’s What You Can Do With Good Credit
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 credit 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 credit 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. Consumers with high credit scores 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 credit limits because your credit history shows that you can pay your loan back on time. Why do you want to have a higher 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 a personal loan 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 credit card that offers lower interest rate, higher credit limit, and lower APR to those with good credit scores.
How to Use Good Credit to Make Money?
A good credit score lets you enjoy many perks. Did you know that having a good credit standing can also help you make money?
By now you already know that having a good credit score lets you have a lower interest rate, which helps you save cash during the entire loan term. You can use the money you save to generate money.
Your options are endless. You can use the loan money to start a small business. You can also leverage your good credit standing to apply for a loan and use the proceeds to purchase an investment property, which over time, can significantly appreciate in value.
What is Credit Karma?
Your credit report and credit score play crucial roles when making financial decisions. Although you’re entitled to a free credit report from the three major credit bureaus, you’re only limited to get a copy of it at least once a year.
With Credit Karma, you can get free access to your credit reports and credit scores whenever needed. It also aims to help its members improve their credit standing by explaining how credit scores are calculated, showing the problematic areas in their credit report, and offering suggestions on how to improve their credit score.
You can request a free credit report from Credit Karma in exchange for your name and the last four digits of your Social Security number. The credit score and credit report it provides come from the data gathered from two of the three major credit bureaus: Equifax and TransUnion. Credit Karma will then compile VantageScores based on the obtained information and make your credit score and credit report available to you. So, if you want to know what your credit standing is, you can visit Credit Karma.
Although the credit report, credit scores, credit improvement tips, and tax preparation assistance offered to you by Credit Karma are free, they still make money once you purchase any of their recommended products or services. They recommend financial products, such as credit cards and savings accounts with MVB Bank.
How to Increase 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 history, 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 credit card balance, too.
3. Apply For New Credit Only When Necessary
Applying for a new credit card, a car 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 card is backed by a security deposit. Don’t forget to get a secured credit card from a financial institution that reports your payments to the three major credit reporting agencies.
You’ll enjoy many benefits if you have a good credit score. 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.