Last Updated on August 28, 2023
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9 Benefits of Having a Good Credit Score
You can survive with bad credit, but it’s not always easy and definitely not cheap. Establishing a good credit score will help you save money and make your financial life much easier. If you’re looking for reasons to maintain your good credit, here are some great benefits to having a good credit score.
Low Interest Rates on Credit Cards and Loans
The interest rate is one of the costs you pay for borrowing money and the interest rate you get is often directly tied to your credit score. If you have a good credit score, you’ll almost always qualify for the best interest rates, and you’ll pay lower finance charges on credit card balances and loans. The less you pay in interest, the sooner you’ll pay off the debt, and the more money you’ll have for other expenses.
Better Chance for Credit Card and Loan Approval
Borrowers with a poor credit history typically avoid applying for a new credit card or loan, because they’ve been turned down previously. Having an excellent credit score doesn’t guarantee approval, because lenders still consider other factors such as your income and debt. However, a good credit score increases your chances of being approved for new credit. In other words, you can apply for a loan or credit card with confidence.
More Negotiating Power
A good credit score gives you leverage to negotiate a lower interest rate on a credit card or a new loan. If you need more bargaining power, you can take advantage of other attractive offers that you’ve received from other companies based on your credit score. However, if you have a low credit score, creditors are unlikely to budge on loan terms, and you won’t have other credit offers or options.
Get Approved for Higher Limits
Your borrowing capacity is based on your income and your credit score. One of the benefits of having a good credit score is that banks are willing to let you borrow more money because you’ve demonstrated that you pay back what you borrow on time. You may still get approved for some loans with a bad credit score, but the amount will be more limited.
Easier Approval for Rental Houses and Apartments
More landlords are using credit scores as part of their tenant screening process. A bad credit score, especially if it’s caused by a previous eviction or outstanding rental balance, can severely damage your chances of getting into an apartment. A good credit score saves you the time and hassle of finding a landlord who will approve renters with damaged credit.
Better Car Insurance Rates
Add auto insurers to the list of companies that will use a bad credit score against you. Insurance companies use information from your credit report and insurance history to develop your insurance risk score, so they often penalize people who have low credit scores with higher insurance premiums. With a good credit score, you’ll typically pay less for insurance than similar applicants with lower credit scores.1
Get a Cell Phone on Contract With No Security Deposit
Another drawback of having a bad credit score is that cell phone service providers may not give you a contract. Instead, you’ll have to choose one of those pay-as-you-go plans that have more expensive phones. At a minimum, you might have to pay extra on your contract until you’ve established yourself with the provider. People with good credit avoid paying a security deposit and may receive a discounted purchase price on the latest phones by signing a contract.
Avoid Security Deposits on Utilities
Security deposits are sometimes $100 to $200 and a huge inconvenience when you’re relocating. You may not be planning to move soon, but a natural disaster or an unforeseen circumstance could change your plans. A good credit score means you won’t have to pay a security deposit when you establish utility service in your name or transfer service to another location.2
Bragging Rights
Because of all the benefits, a good credit score is something to be proud of, especially if you’ve had to work hard to take your credit score from bad to good. If you’ve never had to experience a bad credit score, keep doing what it takes to maintain your good score. It only takes a few missed payments to start getting off track.
What’s a Good Credit Score?
A good credit range depends on where a score comes from and who’s judging it. And there are different scoring companies, so you can have more than one credit score. As the Consumer Financial Protection Bureau (CFPB) puts it, “Based on your credit reports, you will be given a credit score by the credit-reporting companies. You don’t just have one credit score—each company does their own.”
FICO®, which is one credit-scoring company, says scores between 670 and 739 qualify as good. For VantageScore®, another credit-scoring company, scores between 661 and 780 might be considered good. Scores can also be considered very good, excellent and exceptional.
It may also help to know that credit scores are based on information in your credit reports. Scores are calculated by credit-scoring companies, like FICO and VantageScore, using complex formulas called scoring models.
Here’s how FICO and VantageScore define credit score ranges:
Source: MyFICO.com
Source: VantageScore.com
What Are the Benefits of a Good Credit Score?
The benefits of good credit can include everything from lower credit card interest rates to lower car insurance premiums.
Since credit scores are based on information in your credit reports, a higher score is a sign of healthy credit—and that can be the key to enjoying these eight benefits:
1. Get Better Rates on Car Insurance
First up: car insurance. Some insurance companies may use your credit scores to make all kinds of decisions when you apply for coverage.
According to the CFPB, insurance carriers can use your credit reports to help decide whether to approve your application and how much to charge you. Once you’re a customer, they may check your credit to help decide whether to raise your premiums or even deny you the chance to renew your policy.
2. Save on Other Types of Insurance
Companies offering other kinds of insurance—home insurance, for example—may also look at your credit history.
That’s because insurance companies may want the same information that other lenders look for. That could include your history of on-time bill payments as well as how much debt you owe. What insurance companies learn about your credit may help them determine how much you’ll pay in premiums.
3. Qualify for Lower Credit Card Interest
When you apply for a credit card, the card issuer will likely check your credit. If you’re approved, a good credit score may make you eligible for things like a lower annual percentage rate (APR).
What exactly is an APR? The CFPB describes it as the price you pay for borrowing money: “For credit cards, the interest rates are typically stated as a yearly rate. This is called the annual percentage rate (APR).” The CFPB also says that good credit may be helpful when it comes to determining your APR since “credit card companies typically offer their best rates to customers who have the highest credit scores.”
Good credit may also play a role when you want to upgrade or apply for a new credit card—one with better benefits and rewards, for instance.
4. Get Approved for Higher Credit Limits
You’ve just learned about how good credit may help you qualify for lower interest on credit cards. It may also help you get a higher credit limit on credit cards.
Finally, good credit may also help you get bigger loans—from banks, for instance. Since a good credit score may signal to lenders that you’re a good credit risk, they may be willing to lend you more money.
5. Have More Housing Options
Where you live can have a big impact on your quality of life, right? Good credit can help in this instance too. That’s because landlords may check your credit history when you apply to rent an apartment.
Good credit may also help you get a mortgage for a house and a lower interest rate. The CFPB says, “The better your credit history, the more likely you are to receive a good interest rate on your mortgage loan.”
6. Get Utility Services More Easily
Your credit may also be considered when you set up accounts for utilities like electricity or internet service. According to the Federal Trade Commission, “Getting utility services…has a lot to do with your credit history. The better your credit history, the easier it will be for you to get services.”
Also, good credit can mean that the utility company might not require a security deposit.
7. Get a Cell Phone Without Prepaying or Making a Security Deposit
If you have poor credit, some cell phone companies may require a security deposit or ask you to prepay when opening your account. But good credit may help you avoid those up-front costs.
8. Look Better to Potential Employers
When you apply for a job, some companies may look at your credit reports as part of a background check. While it’s possible to get a job with less-than-perfect credit, employers might see things like late payments and bankruptcies as possible red flags.
That’s why the CFPB recommends checking your credit reports before you start looking for a job. Checking your reports may help you spot mistakes and missing information. You can get free credit reports from each of the three major credit bureaus. Visit AnnualCreditReport.com to learn how.
Ways to Improve Your Credit
Now that you know more about the benefits of good credit, you may want to work on improving yours. These seven steps for improving your credit could help:
- Check your credit scores often.
- Know some factors that go into a typical credit score.
- Keep an eye on your credit reports for errors.
- Learn how often you can check your credit reports.
- Understand which common credit card mistakes to avoid.
- Make payments on time and keep credit card balances low.
- Beware of quick credit score fixes.
Monitoring Your Credit Regularly
Since credit can impact so many areas of your life, it can help to keep yours top of mind. And monitoring your credit regularly can help give you a big-picture view of your overall financial health.
