9 Advantages of Having a Good Credit ScoreJanuary 9, 2023
If you have been paying your bills on time and have achieved a high credit score, congratulations! A high credit score opens up many options that can help in both your financial and personal lives. Now that you have a good credit score, here are seven ways to put it to work for you.
What is a Good Credit Score?
A credit score is a three-digit number that lenders use to determine how much of a risk it is to lend money to a person. There are two major types of credit scores, a FICO credit score, and a VantageScore. Lenders can use either score, although a FICO score is used by 90% of the top lenders. A credit score can range from 300 to 850. A good credit score is considered to be in the range of 670 to 739. According to Experian, one of the credit bureaus that calculates scores, the average FICO score in 2021 was 714.
What Can You Do With a Good Credit Score?
When you have a good credit score, there are many benefits you can take advantage of to help improve your finances and that affect your personal life. Here are some examples of how you can put your good score to work for you:
1. Help Qualify for Credit Cards and Loans
When you apply for credit cards or loans, including student loans or car loans, the lender pulls your credit report and score to determine your creditworthiness. A good credit score will help you qualify for credit cards or loans. With a strong credit score, you can qualify for sought-after credit cards that offer rewards and benefits, such as airline miles or cash back dollars.
With a low credit score, you may not qualify for loans or credit cards or may have to settle for higher interest rates and fewer perks.
2. Save You Money in Interest
If your credit score allows you to qualify for a credit card or loan, a good credit score can help you qualify for a lower interest rate, thereby saving you money. This can help advance your financial future because if you save money in interest costs, you can put those savings towards other financial goals, like retirement or an emergency fund.
3. Qualify for Housing
A credit score doesn’t just affect you when you are trying to take out a loan; it can also affect your personal life by determining whether you will be approved for rental houses or apartments. Landlords may look at your score to determine whether you may be at risk of not paying rent. A good score makes you more likely to be approved for housing.
Avoid Security Deposits: When you have a good credit score, you can use it to your advantage by not having to pay some security deposits or paying a reduced security deposit. This can come into play with utility companies, like electric and water companies, as well as with cable and internet companies. With a lower credit score, you may have to pay a high-security deposit when you are signing up for utilities. A higher credit score leads to more savings!
4. Help Get a New Cell Phone
If you are looking to get a new cell phone but won’t be paying for it outright, you may need to lease a phone. Some carriers will require a good credit score to qualify for a lease plan on a new cell phone.
With some carriers, individuals with poor credit may have to make a larger down payment, pay the entire cost upfront, or choose a different phone.
5. Qualify for Refinancing
If you want to refinance your student loans or mortgage, having a good credit score can help you qualify and obtain a lower interest rate. Refinancing can help decrease your monthly costs, as well as your interest costs, over the life of the loan. Find out how applying for a mortgage affects your credit score.
6. More Options from Different Lenders
With a high credit score, you will be able to qualify with many different lenders when you are trying to obtain a loan. Having many different lenders willing to work with you enables you to obtain the lowest interest rate and best terms. With a lower credit score, you may qualify with fewer lenders and would be forced to use lenders that offer less than ideal rates and terms.
7. Better Insurance Rates
When you apply for car insurance, your credit score plays a big role in determining your premiums in many states. Car insurers may offer lower rates to those with good to excellent credit and charge those with poor to fair credit a higher price.
8. Job Opportunities
If you’re searching for a new job, having a strong credit history can help you. While employers cannot see your credit score, they can require background and credit checks as part of their screening processes. If you consent, they can pull your credit report and see if you have derogatory marks on your credit report.
Having a good credit history — meaning a credit report with all of your account’s current and low outstanding balances — will show potential employers that you handle credit responsibly.
9. Negotiating Power
When you have good to excellent credit, you are a more appealing borrower to lenders and credit card companies. You can use your good credit to negotiate better rates than you have now.
For example, if you have credit cards with high APRs, you can contact the card issuer and request a rate reduction. Because credit card companies compete for business, they may be willing to lower your rate or waive fees to keep you a customer.
How to Improve Your Credit Score
A credit score is determined by information in your credit report, such as your payment history, whether you make late or on-time payments, how much debt you have, and how much available credit you have. If your credit score isn’t where you want it to be, here are a few ways to improve it:
Pay your bills on time every month
A major part of your score is based on the consistency of your payments. If you don’t have a budget, create one to make sure all your payments can be made.
Pay down debt
The next major factor in determining a credit score is the amount of outstanding debt. Try to pay down your balances to keep the debt amount low.
Do not apply for a lot of credit
Every time you apply for credit, it causes an “inquiry” on your report. There are two forms of credit inquiries: hard and soft. Soft credit inquiries are used as part of a lender’s prequalification process and don’t affect your score. By contrast, a hard credit inquiry occurs when you submit an application, and it can cause your drop by several points.
On your credit report, all inquiries from the past 12 months are shown. Having many inquiries can raise red flags to lenders, and multiple hard credit inquiries can impact your credit.
Learn more about hard vs soft credit inquiries.
Do not close long-standing accounts that are in good credit
Some of your score is based on the length of your credit history. A longer credit history can help improve your score.
Having a good credit score can help you in the future, whether with financial aspects or your personal life. If your credit score is negatively affecting you, follow the above steps to improve it. And if you have a high credit score, put it to good use and keep up the good work!
How to Monitor Your Credit Score
Now that you know the benefits of a good credit score, you can take steps to monitor and improve your credit.
You can view your credit reports — but not your scores — from each of the three credit bureaus for free at AnnualCreditReport.com.
You can purchase your credit score for a fee from each of the credit bureaus, but you may have access to a free credit score through your credit card issuers. Companies like Chase, Discover, and Capital One all provide customers with monthly credit score updates.
You can also use services like Credit Karma and Credit Sesame to view your credit score for free. Just keep in mind that the credit score they use may be different than the one used by certain lenders, so you should think of it more as a guideline for your credit health.