There are several ways your credit score can impact your overall financial health. Depending on your credit score and credit history, you could get better interest rates on loans and credit cards—or pay high rates that could make it challenging to afford monthly payments. Your credit score could possibly qualify you for better insurance rates—or contribute to sky-high premiums. Most important, your credit score could make reaching your financial goals relatively easy and straightforward—or more difficult.
Here’s a closer look at why your credit score is important to your finances, and how a good credit score can make a difference. If you’re discouraged because your credit isn’t where you want it to be, keep reading for ways to build the credit score you want.
1. You May Qualify for Lower Interest Rates
The most favorable loan terms typically go to borrowers with high credit scores. Depending on the credit card or loan product, a slight reduction in interest rate could equate to several hundred or even thousands of dollars in cost savings.
2. You May Be Able to Save on Insurance Costs
Your auto insurance provider may check your credit and discount your premiums if you have good or excellent scores—or charge you more if your credit is lacking. However, insurance providers in California, Hawaii, Massachusetts, and Michigan are prohibited from used credit scores when calculating premiums.
3. You’ll Have More Auto Loan and Home Loan Options
Most lenders have a minimum credit score requirement you must meet to qualify for an auto loan or home loan. Some may still approve you if your score is low, but you might be assessed a higher interest rate and asked to make a hefty down payment to secure financing.
4. It May Be Easier to Rent an Apartment
Assuming you have sufficient income to cover monthly rent, a higher credit score may make it easier to rent an apartment. Some landlords check credit during the application process to determine the likelihood of you making timely rent payments. They may request a higher security deposit if your score is low, or deny you altogether if there are more qualified applicants.
5. Financial Goals Are Easier to Attain
It’s much easier to achieve financial goals with a stronger credit score. You will have access to more loan products with competitive terms, which frees up funds to build your savings account and invest for the future. A higher credit score could also mean you won’t have trouble securing your dream job if the prospective employer requires a credit screening.
How to Achieve a Good Credit Score
According to the FICO credit scoring model, the score most often used by lenders, a score of 670 or above is considered good (though lenders may prefer a score of 700 or higher). If you want to improve your credit, you should know what’s affecting your credit score.
These healthy credit habits can also help you get there:
Make timely payments each month. Creditors typically report late payments to the credit bureaus once an account reaches 30 days past due. A late payment can tank your credit score, and the negative mark will linger on your report for seven years.
Reduce your credit card balances. It’s best to keep your credit card balances below 30% of the credit limit to maintain a good credit score, but the lower, the better.
Don’t apply for new credit unless you need it. A hard credit inquiry is generated each time you apply for credit and could cause your credit score to drop a few points. Applying for several different types of credit in a short period of time could also be a red flag to lenders.
Keep tabs on your credit report and score. This allows you to track your score and spot errors or inaccuracies faster. Credit monitoring services, such as Experian’s free service, will alert you when your credit report changes, allow you to check your report and score, and provide tips on how to improve your credit.
Subscribe to the Digital Orange Juice for juicy ideas and the people who fund them. You can find out about our next pitch competitions here. Don't forget to check out the SheRaise platform for more pitch events.
Allison Martin is a Certified Financial Education Instructor (CFEI), syndicated financial writer, and author. Her work has been featured in The Wall Street Journal, ABC, MSN Money, Yahoo! Finance, Fox Business, Credit.com, MoneyTalksNews, Investopedia, The Simple Dollar, and a host of other reputable publications. She also teaches the essentials of personal finance through seminars and workshops.
Comments