Having good credit can make it easier to get a loan for a house or a car, and to qualify for the best interest rates and loan terms when you do. Benefits of having a good credit score can even include having a leg up when you apply for a job, or saving money on certain types of insurance.
A good credit score typically ranges from 670 to 739 according to the Fair Isaac Corporation (FICO), although it's possible to improve credit into the very good range of 749 to 799, or even the excellent range of 800+.
Key Points:
- The most common type of credit score is the FICO score. This type of credit score is used by 90% of top lenders when making decisions on credit.
- Some perks of having good credit are obvious (i.e. lower interest rates), whereas others like lower insurance rates and no deposits on utilities might surprise you.
- The higher your credit score, the more perks and benefits you get in return.
Good Credit Benefit #1: Better Chance of Credit Card and Loan Approval
If you've ever tried to get a credit card or a loan with poor credit, you already know that your options can be limited and downright unattractive. Financial products for people with bad credit tend to come with high fees and interest charges, and they don't offer perks like sign-up bonuses or rewards for spending.
When you have good credit, you can:
- Qualify for the best credit cards and rewards products. Where a credit score over 670 (670 to 739) will help push you over the threshold where you can get the best deals, a score over 700 or 740 will help you get approved for the best of everything.
- Earn cash back on spending. A good credit score makes it possible to earn cash back or travel rewards on all your spending.
- Access better loan options. When your credit is good, you can qualify for a car loan so you can get to work. Good credit also makes it possible to take out a personal loan for debt consolidation, a big project or something else.
"Good credit makes it easier to qualify for credit cards and loans, and to get better rates and terms each time you apply."
Good Credit Benefit #2: Higher Borrowing Limits
While you'll also need a solid income to get loans and credit cards with high limits, a good credit score can help your case. After all, a high credit score tells lenders you'll pay back the money you borrow, and this makes them more likely to be generous when it comes to how much they will lend.
With a good credit score and higher limits across all your credit cards, you can:
- Make large purchases without worrying the transaction will be denied. A higher credit limit makes it less likely you'll endure this embarrassing experience.
- Score bonuses on expensive items you buy. Use a rewards credit card to earn sign-up bonuses when you buy new furniture, upgrade your home appliances or make another large purchase.
- Finance a vacation you can't necessarily afford to cover with cash. Borrowing money can make sense when something you need to pay for costs a little more than you have.
Good Credit Benefit #3: Lower Interest Rates
Lenders base credit decisions on your credit score and other factors, but they also use your score to determine how much interest you pay. While having a rate that's a few points higher may not seem like a big deal, it can actually cost you hundreds or thousands of dollars in additional interest payments over several years.
- Save money. Lower interest rates on personal loans for good credit and other financial products can save you hundreds or thousands of dollars each time you borrow money.
- Boost your buying power. Good credit that leads to lower rates can also increase your purchasing power since less of your payment goes to interest each month.
- Avoid financial waste. If you're stuck with sky-high rates due to a poor credit score, you're throwing money away each month
"Imagine you borrow $20,000 for a car with bad credit and the dealership offers you a 60-month loan with an APR of 16.46%. At that rate, your monthly payment would be $491 and you would pay a total of $9,475.77 in interest over the life of the loan. By contrast, the same loan with a 8.99% rate would cost you $415 per month and $4,904.20 in interest over 60 months."
Use this loan calculator to calculate your rates: Calculator.net
Good Credit Benefit #4: A Leg Up in The Housing Market
Things to do with good credit can also include buying a house, although you'll have better prospects as a renter with good credit, too. After all, real estate options really open up when you have an excellent credit score and solid history of paying bills on time. By contrast, having a low credit score can mean needing a co-signer for an apartment, being denied a mortgage, or having to live at home longer than you really want to.
Good credit gives you a leg up in the housing market by:
- Make your rental application more attractive when you apply to rent an apartment or a home. Landlords love seeing applicants with good credit, and mortgage companies will flat-out deny you if you don't meet their requirements.
- Qualify for a broader range of mortgage options. With good credit, you could qualify for a conventional mortgage with better rates and terms.
- Get the best interest rates and loan terms when you purchase a home. Individuals with the best credit save money on interest and have their pick of lenders.
Good Credit Benefit #5: Better Insurance Rates
According to Progressive, most car insurance companies look at your credit and assign you a credit-based insurance score that helps determine what you pay. Ultimately, this means bad credit leads to higher car insurance rates, whereas good credit lets you save some cash. How much more will you pay to insure your car? According to a study from InsuranceQuotes, poor credit could leave you paying as much as 50% more for car insurance.
Benefits of better insurance rates include:
- Save money with your current insurance company. Good credit could potentially save you 33% off car insurance premiums.
- Boost your savings by shopping around. You could save even more if you improved your credit then shopped around for a new auto insurance policy.
Good Credit Benefit #6: Simpler Utility Sign-Ups
With poor credit, everything becomes more costly and complicated. For example, the Federal Trade Commission (FTC) notes it's possible to be denied utility services based on your credit and payment history. If you are able to get utilities set up with bad credit, you may have to pay a deposit to have service turned on and the utility company.
By getting your credit score in the "good range," you can:
- Avoid upfront fees. When you have good credit, you simply call in to set up your account, provide some basic information, and you're good to go.
- Avoid trying to get a refund. When you are forced to make a security deposit with a utility company, they can keep this money for anywhere from 9 to 15 months.
- Avoid being denied utility services. Good credit means you won't have to get a cosigner to turn on electricity in a new apartment or house.
Good Credit Benefit #7: Positive Impression on Employers
While it's more likely an employer will check your credit if the job you're applying for requires you to handle finances or sensitive data, Experian says employers also use credit checks as a tool to gauge your trustworthiness. With good credit and a long history of on-time payments on your report, you can show employers that:
- You know how to manage money. Good credit shows you pay your bills on time, and that you do what you say you're going to do.
- Avoid losing out on a job for no reason. Where good credit shows you're on top of your financial life, bad credit shows employers you have had problems meeting your commitments in the past.
"Good credit can help you get a job when an employer requests a modified version of your credit report for hiring purposes, and when you consent."
The Advantages of Good Credit Scores for Businesses
Having a good credit score is one of the most important parts of running a successful business:
- Increased Capacity to Borrow Funds: Having a high credit score can help a business get better loan terms and interest rates, which lets the business borrow more money for growth or investment.
- Improved Reputation: A high credit score is seen as a sign of a company's financial responsibility and stability, which can help the company become known as a reliable partner. This could be a very important aspect to consider when looking for new business opportunities or making new partnerships.
- Access to more favorable payment terms from suppliers: If a company has a good credit score, its suppliers may offer better payment terms, which makes it easier for the company to manage its cash flow.
- Increased leverage and negotiating power: A good credit score can give a business more leverage and negotiating power when it talks to creditors and lenders, which can lead to better terms for the business.
- Better insurance rates: Businesses with a long history of good credit are more likely to be approved for lower insurance rates, which will save the business even more money.
Final Word
The benefits of a good credit score can include significant savings on interest, the ability to qualify for better credit cards and loans and the potential for more purchasing power. Plus, having good credit just makes life easier since it eliminates many roadblocks people with bad credit have to face.
Simply put, there are endless reasons to have good credit if you can and zero reasons not to.
