6 Benefits of a Good Credit Score

6 Benefits of a Good Credit Score

You might only think about your credit score before a big purchase, like when buying a house or applying for a loan. However, good credit can serve as a continuous backstage pass into a world of VIP perks, superior products and easier access into the opportunities you want most.

“You want to make sure you have good credit scores for some of the obvious things like helping you to get lower interest rates, better terms and reduced costs that will save you money,” says Rod Griffin, director of consumer education and awareness with Experian, one of the three major credit bureaus. But beyond those well-known and recognized benefits, there are lots of other ones that people don’t think about, he adds.

Loading...

What Is Good Credit Anyway?

A good credit score allows you to have the upper hand because you have the option to work with many lenders, says Kemberley Washington, a CPA and member of the American Institute of CPAs’ National CPA Financial Literacy Commission. “You can actually have some bargaining power, and you can shop around.”

In fact, you may even have businesses clamoring to have you as a customer. When you achieve high scores, it gives you what Experian sometimes refers to as “credit swagger,” says Griffin, allowing you to be more confident when you negotiate.

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

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 in a similar way and also ranges from 300 to 850. Although each score’s algorithm differs slightly regarding which credit behaviors have the most impact, the score ranges are very similar. Good credit is a 670 or higher FICO score, or a 700 or higher VantageScore.

The average FICO score reached an all-time high of 704 as of September 2018.

Benefits of Your Good Credit Score

Take a look at some of the key advantages that achieving a top-notch credit score can unlock. Then, get to work on improving yours.

You’ll have access to more homebuying options and loan products.

When Washington lost her home in Hurricane Katrina, she learned firsthand how crucial it was to have a strong credit score working in her favor. “Rents in New Orleans were so high, so instead of renting, I decided to purchase a small condo,” says Washington. That’s something she likely wouldn’t have been able to do had she not established strong credit in her early 20s. “It put me in the driver’s seat,” she says, adding that she still has the condo today and it’s helped her build wealth.

For anyone who wants to buy property, a poor credit score 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 to borrowers with scores as low as 500.

An FHA loan requires that you pay a 1.75 percent fee upfront, 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 the FHA fee and only requires private mortgage insurance until you’ve paid off 20 percent of the property value.

Even if you are already a homeowner, maintaining a strong score is beneficial should you ever decide to refinance your mortgage or take out a home equity line of credit. To give you an idea as to what kind of credit score you should aim to maintain, in January 2019, 66 percent of refinance borrowers had FICO scores of more than 700, according to the Ellie Mae Origination Insight Report.

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

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

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

From airline miles to retail discounts to cash back, not to mention luxury perks like airport lounge access and concierge services, higher scores open up doors to elite card products. “There are many credit card incentives 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’ll likely pay less for insurance.

In 2017, those with a fair credit score paid as much as 36 percent more for their home insurance than those with excellent credit, according to a study commissioned by InsuranceQuotes. And yes, checking your credit is relevant for insurance products. “When you apply for insurance, you are essentially making an application for a financial service,” says Griffin. The insurer will provide you with financial support if you file a claim.

Therefore, insurers’ main concerns are: Will you be able to pay the premium on time, and what is the likelihood that you will make a financial claim? As such, insurance companies may check your credit history along with an industry-specific credit score, says Griffin. He points out that industry-specific scores are calculated using the information in your credit report, just like your consumer score.

Once they pull your insurance credit score, it will be one of the elements used to determine your risk level and therefore how much cost they will pass along to you.

You might skip large deposits for utilities or cellphone plans.

If you’re interested in financing the latest $1,200 smartphone, the cellular provider is going to look carefully at your credit report and scores first, Griffin says. That’s one of the things that will help it determine how much cash you’ll need upfront, or if it wants to offer a financing contract at all. Your phone options may be limited without good credit.

Similarly, utility companies will also pull your credit score to figure out your security deposit amount. Once again, a great credit score will likely reduce the amount that you’ll have to put down, or you might not have to pay those security deposits at all, Griffin says.

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

According to a 2017 national survey by TransUnion SmartMove, about 90 percent of landlords say they run a credit and criminal background check on prospective tenants. If you’re renting or leasing an apartment, your credit score can affect your lease rate and deposit requirements, says Griffin.

What’s more, if you live in an area where good apartments are scarce, a high score could help set you apart from other applicants and ultimately help you land the apartment you want.

It’s a sign that you’d make a financially responsible partner.

“When you’re dating, the question now isn’t ‘What’s your sign?’ it’s ‘What’s your score?'” says Griffin. While he admits that’s a slight exaggeration, each partner’s credit standing 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 TD Bank’s annual Love and Money study in 2017, 43 percent of couples discuss their finances within the first three months of the relationship. Wouldn’t it be wonderful if you had a top-notch credit score to speak of when the conversation came up?

How to Mend Bad Credit

First and foremost, you need to know where you stand. 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 one of your credit cards, a financial app or your banking institution.

“If you’re in a situation where your credit score is not where you want it to be, first review your credit report to determine if there are any inaccuracies,” says Washington. If you do discover an error, she says to head straight to the credit bureau websites to begin the process of filing a dispute with each of them.

As for negative items on your report that are accurate, be proactive. “You can contact your creditors to determine if you can make an arrangement to boost your credit score,” says Washington. For instance, you might be able to negotiate a payoff amount to have them remove the negative item from your credit report.

Beyond clearing up errors and delinquencies, the easiest way to move forward is to pay your bills on time and keep your balances low, says Griffin. In fact, those are the two most important factors in the credit score calculation, accounting for a combined 65 percent of your score.

The bottom line? Don’t just pay attention to your credit scores before you make a big financial move – make it a regular habit. Washington says, “A good credit score can help you with all aspects of your financial life.”

 

Source:- creditcards

Share:
Loading...