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6 benefits of a good credit score

By on March 11, 2021 0

You may only be thinking about your credit score before a major purchase, such as when to buy a house or apply for a loan. However, good credit can serve as a continuous behind-the-scenes pass to a world of VIP benefits, premium products, and easier access to the opportunities you want most.

“You want to make sure you have good credit scores for some of the obvious things like helping you get lower interest rates, better terms, and lower costs that will save you money,” explains Rod Griffin, Director of Consumer Education and Outreach at Experian. , one of the big three credit bureaus. But beyond these well-known and recognized benefits, there are plenty more that people don’t think about, he adds.

What is good credit anyway?

A good credit score gives you the edge because you have the ability to work with many lenders, says Kemberley Washington, CPA and member of the National CPA Financial Literacy Commission of the American Institute of CPA. “You can actually have some bargaining power and you can shop around. “

In fact, you may even have businesses that claim to have you as a customer. When you get high scores, it gives you what Experian sometimes calls “credit arrogance,” Griffin explains, which allows you to be more confident when trading.

Because your credit score is ultimately a measure of your creditworthiness based on how you’ve handled credit in the past, those with higher scores pose less risk to lenders, creditors, and creditors. other people with whom they want to enter into a financial relationship.

The The most common consumer credit score is FICO, created by Fair Isaac Corp., which has a score range between 300 and 850. VantageScore, another popular credit scoring model, works similarly and also ranges from 300 to 850. Although the algorithm for each score differs slightly in terms of the most impactful credit behaviors, the score ranges are very similar. Good credit is a FICO score of 670 or more, or a VantageScore of 700 or more.

Benefits of your good credit score

Take a look at some of the top benefits that getting a top notch credit score can unlock. Then get to work to improve yours.

You will have access to more home buying options and loan products.

When Washington lost its home to Hurricane Katrina, she learned with her own eyes how crucial it was to have a strong credit rating in her favor. “The rents in New Orleans were so high that instead of renting, I decided to buy a small condo,” says Washington. This is something she probably wouldn’t have been able to do if she hadn’t established solid credit in her early twenties. “It put me in the driver’s seat,” she says, adding that she still has the condo today and that has helped her build wealth.

For anyone looking to buy a property, a bad credit rating limits your home loan options. A conventional mortgage typically requires a FICO credit score of at least 620, while Federal Housing Administration loans are available for borrowers with a score as low as 500.

An FHA loan requires you to pay a 1.75% fee up front, plus a monthly mortgage insurance premium for at least 11 years. With a higher score, you’re in a better position to apply for a conventional loan, which doesn’t have FHA fees and only requires private mortgage insurance until you’ve paid off 20% of the property’s value. .

Even if you already own a home, it pays to maintain a good score if you decide to refinance your mortgage or take out a home equity line of credit. To give you an idea of ​​the type of credit score you should aim to maintain, in January 2019, 66% of refinanced borrowers had FICO scores over 700, according to the Ellie Mae’s original analysis report.

Beyond home loans, you may decide to work with lenders for other situations, whether it’s financing a car purchase, taking out a small business or personal loan, or applying for a student loan. . For each of these situations, higher credit scores will usually help you get approved for lower interest rates, saving you thousands of dollars in the long run.

You can qualify for better credit cards with higher limits and rewards.

“When you have a good credit history and a good credit rating, you can open up a much larger market for yourself, and that’s really powerful,” Griffin says. As your score improves, you may be offered higher credit limits and better rewards if you apply for additional credit cards.

From airline miles and retail discounts to cash back, plus luxury perks like airport lounge access and concierge services, higher scores open the doors to elite card products . “There are a lot of credit card incentives out there to help you save more money, and having good scores puts you in control of that because they’ll want you to be their customer,” says Griffin.

You will likely pay less for insurance.

In 2017, according to a study commissioned by Insurance Quote. And yes, checking your credit is relevant for insurance products. “When you apply for insurance, you are essentially applying for a financial service,” says Griffin. The insurer will provide you with financial support if you make a claim.

Therefore, the main concerns of insurers are as follows: Will you be able to pay the premium on time and how likely is it that you will make a financial claim? As such, insurance companies can check your credit history as well as an industry-specific credit score, Griffin explains. He points out that industry specific scores are calculated using information from your credit report, just like your consumer score.

Once they get your insurance credit score, this will be one of the things used to determine your level of risk and therefore the cost they will pass on to you.

You can ignore large deposits for utilities or cell phone plans.

If you want to finance the latest smartphone at $ 1,200, the cellular service provider will carefully consider your credit report and ratings first, Griffin said. This is one of the things that will help her determine how much money you will need up front, or if she wants to offer a finance deal. Your phone options may be limited without good credit.

Likewise, utility companies will also extract your credit score to determine your security deposit amount. Again, a good credit score will likely reduce the amount you have to pay, or you may not have to pay those security deposits at all, Griffin says.

You are more likely to get approval to rent an apartment.

According to a national survey carried out in 2017 by TransUnion SmartMove, about 90% of landlords say they conduct a credit check and criminal background check on potential tenants. If you rent or rent an apartment, your credit rating can affect your rental rate and your deposit requirements, Griffin explains.

Additionally, if you live in an area where good apartments are scarce, a high score could help you stand out from other applicants and ultimately help you land the apartment you want.

It is a sign that you would make a financially responsible partner.

“When you are dating someone, the question is not now ‘What is your sign? It’s ‘What’s your score?’ Griffin says. While he admits it’s a slight exaggeration, each partner’s creditworthiness can undoubtedly have an effect on a couple’s financial future, so it’s a conversation that will come up at some point.

In fact, according to the TD Bank Annual Report Love and Money study in 2017, 43 percent of couples discuss their finances in the first three months of the relationship. Wouldn’t it be great if you had a top notch credit score to talk about when the conversation took place?

How to fix bad credit

First of all, you need to know where you are. Request your free credit report each year, via AnnualCreditReport.com, as well as your credit score. These days, you can most likely access your credit score for free through any of your credit cards, a financial app, or your banking institution.

“If you find yourself in a situation where your credit score is not where you want it to be, first take a look at your credit report for determine if there are any inaccuraciesWashington says. If you discover an error, it tells you to head straight to the credit bureau websites to begin the process of filing a dispute with each one.

When it comes to negative items in your report that are accurate, be proactive. “You can contact your creditors to determine if you can make an arrangement to increase your credit score,” says Washington. For example, you might be able to negotiate a refund amount so that they remove the negative item from your credit report.

Beyond resolving errors and delinquencies, the easiest way to move forward is to pay your bills on time and keep your balances low, Griffin explains. In fact, these are the two most important factors in calculating the credit score, which represents a combined 65 percent of your score.

The essential ? Don’t just pay attention to your credit scores before you make a big financial move – make it a regular habit. According to Washington, “a good credit score can help you in every aspect of your financial life.”