What Are the Advantages of a Good Credit Score?
Equifax, one of the top three credit reporting bureaus, considers credit scores between 670-739 to be good credit scores. FICO is one of the most commonly used credit scoring companies. FICO uses information from credit bureaus like Equifax to calculate a three-digit credit score that represents your credit. The scores are calculated based on five categories:
- Payment History (your record of paying your bills on time) – 35% of your credit score.
- Amount Owed (how much of your credit are you using) – 30% of your credit score.
- Length of Credit History (how long have you had credit) – 15% of your credit score.
- Credit Mix (how many different types of credit you have) – 10% of your credit score.
- New Credit (how often you are applying for credit) – 10% of your credit score.
Good credit history of on-time payments, not using too much credit, not trying to get a lot of credit, and having different credit types give businesses an idea of how much they can trust you to pay your bills on time. In a nutshell, if a company feels you will pay them back, you will typically pay less than someone a business may not think will pay them back.
So, is a high credit score good and if so, then what are the benefits of having good credit? Here is a quick list of the most important benefits of good credit:
Lower Annual Percentage Rate (APR)
One of the perks of having good credit is that you’ll be offered lower APRs. This is the interest you pay to your creditor for using their credit. The better your credit score, the less interest you pay.
No Security Deposit
One of the benefits of having a good credit score is that you’ll be able to get loans with smaller or even zero collateral. Businesses often lower or even eliminate security deposits for people with good credit. Companies use deposits as “insurance,” so if you don’t pay your bill, the business will keep your deposit to pay the missed bill. This is why companies ask for a security deposit from people with no or low credit scores.
Having Good Credit Makes Buying a Car Easy
Benefits of a high credit score also affect your ability to buy and maintain a vehicle. Here are the different ways in which your credit affects your ability to own a vehicle in a few ways:
- Places where you can buy a car. Some dealers will not finance someone with a poor credit score (typically under 580 for some businesses)
- The amount of your monthly payment. Your car payment is a combination of the car’s principal cost and your loan interest rate mixed in with other fees: the higher your interest rate, the higher your car payment.
- Your ability to get car insurance. Many insurance companies use your credit history to decide your premiums or even if they will give you car insurance.
Buying a Home or Rent an Apartment
If you’re wondering about which things you can do with a good credit score? You should know that your credit score significantly affects your ability to own a home due to the following:
- Home loans: Your credit score determines which types of loans you can get. The more loans you are eligible for, the better. Your credit score determines how much interest you pay, affecting your overall monthly payment.
- Apartments: Most landlords will review your credit report. Some apartment buildings may require a minimum credit score to approve your application. A high score may also mean a reduction in a security deposit for your apartment. It may also reduce or even eliminate a security deposit for utilities.
Homeowner’s and Renter’s Insurance
Like car insurance, a homeowner’s and renter’s insurance company will review your credit, which may impact your premiums, meaning more money you may have to pay for your insurance coverage.
Getting a job
Why is it good to have a good credit score if you’re looking for a job? Well, most employers will check your credit. Some employers, like a bank, may require you to have a good credit history. Other places, particularly those that require security clearances, may review your credit to make sure you have a good record.
Good credit history affects many areas of your life. Take the time to review your credit. If your credit score isn’t where you want it to be, consider reading “How Do You Improve Your Credit Score?“
This series on building credit is brought to you in partnership with United for Financial Health powered by Experian. Log in to your SaverLife account to earn points for reading about credit and taking quizzes to test your knowledge.
