So people do not fully understand the benefits of good credit. Therefore, they continually make decisions that drive down their credit scores — whether it’s paying bills late, applying for too many credit accounts, cosigning for another person, or accumulating a lot of debt.
But if you speak with financially savvy people, they’ll preach the importance of a high credit score. Credit scores range from 300 to 850. A credit score in the 800 range may seem like a far off dream — but it’s attainable. And once you reach a high credit score, it not only becomes easier to qualify for financing — a high rating can save you money.
Here’s a look at seven incredible ways a good credit score helps your wallet.
1. Getting a mortgage loan
Some mortgage lenders only issue loans to applicants who have a credit score of 680 or higher. But if you apply for an FHA loan or another special loan program, you might qualify for a home loan with a low credit score. This is good news if you’re interested in buying a house. But unfortunately, a low credit score triggers a higher mortgage rate. And the higher your rate, the higher your monthly payments. You’ll pay more interest over the life of the loan, plus a high mortgage rate reduces buying power.
2. Applying for auto loans
Similar to getting a mortgage loan, your credit score also influences your rate on an auto loan. And while some dealerships cater to people with low credit scores, these loans feature high rates and higher monthly payments. Unfortunately, keeping up with higher payments prove difficult for some people, thus increasing the risk of repossession.
However, many auto buyers can avoid the situation by postponing a purchase and waiting until their credit improves. Increasing your credit score might seem difficult, but it’s often a matter of paying bills on time, reducing debt and maybe working with a credit repair service.
3. Getting a cell phone plan
If you have bad credit or no credit, many cell phone providers will require a security deposit before offering a plan. And if you cannot afford this deposit, your only option is to purchase a prepaid cell phone plan.
4. Qualifying for low rate insurance
You may feel that credit scores and insurance premiums have nothing to do with each other. But when determining your insurance premium, some companies conduct a credit check; and unfortunately, people with bad credit scores are often charged higher premiums. This can apply when looking for health insurance, life insurance and auto insurance, depending on the company. You can shop around in search of a cheaper premium; but ultimately, a good credit score gets you the best rates.
5. Better job opportunities
You may know your job inside and out. Unfortunately, if you apply for work in the finance industry or with a government agency, your credit score can determine whether you get a job offer. Many companies conduct credit checks to assess whether an applicant is responsible. From a company’s standpoint, those who manage their finances and credit well typically make good, responsible employees.
6. Renting a home or apartment
If you have bad credit, you probably know that your chances of buying a home are slim to none. Therefore, you might look for a house or apartment to rent. Most landlords do not put a lot of emphasis on credit scores, and they anticipate that some applicants will have credit issues. However, depending on where you want to live, credit may be a determining factor.
This is often the case when renting a luxury apartment. Not to say that you won’t qualify for the rental. But as a result of bad credit, the landlord may require a higher security deposit. A person with excellent credit might only be required to pay a security deposit between $250 and $500, whereas someone with poor credit may have to pay a full month’s rent for their security deposit.
7. Enjoying credit card perks
There are credit cards designed specifically for people with bad credit. These include secured credit cards which require a security deposit – typically a minimum of $250.
There are also unsecured bad credit credit cards, which do not require a security deposit, yet feature a higher interest rate.
Also, when you have poor credit, you may not qualify for certain credit card reward programs. With a rewards program, you earn points or cash back for every dollar you spend. You can redeem points for travel expenses, gift certificates and other merchandise, ultimately reducing future outofpocket expenses.
There’s no denying the importance of good credit. And unfortunately, having no credit history can be just as bad as a low credit score. However, bad credit is fixable. It all boils down to making smarter decisions and handling your accounts responsibility. Going forward, never pay a bill late and devise a plan to reduce debt. Both moves can give your personal rating a boost.