You probably don’t think much about your credit score in your daily life — but it can have a real impact on more than just the credit cards you have in your wallet. Credit scores typically range from 300 to 850, and folks with a FICO® Score of at least 670 are considered to have good credit.
Here’s a closer look at how having a higher credit score can save you money and make your life easier.
More than you may realize
How much does your credit score matter? Here’s where it has an impact.
Lower interest rates
I put the most obvious benefit of good credit first. If you have a higher credit score, you’ll pay less to borrow money. Folks with good credit are more likely to qualify for the best credit cards, many of which come with long 0% intro APR periods that will let you finance a big purchase over a year (or longer) with no interest.
You’ll be able to finance a car or take out a personal loan with a lower interest rate. And you’ll even be able to buy a home for less money: You’re more likely to qualify for a lower rate, and it may not give a mortgage lender as much pause if you can’t make a 20% down payment. (You’ll pay for private mortgage insurance if you pay less than 20% down, but a lower down payment means less upfront cost to buy a house.)
Speaking of mortgages, I just got one with a credit score over 800, and while I still pay more than I wanted thanks to higher rates overall, my rate was almost 1 percentage point less than the average at that time. According to myFICO, someone with a credit score of 800 stands to pay more than $300 less per month on a $300,000 mortgage than someone with a score of just 620 (the minimum for a conventional loan) as of this writing.
Cheaper insurance
Want to pay less for home or auto insurance? Good credit gets you this, too. Rightly or wrongly, if your credit history shows that you are responsible with borrowed money, insurers may take it as a sign that you’re less likely to drive recklessly and file insurance claims. There’s only a handful of states where insurers are restricted in their use of your credit in setting rates.
Easier to get a lease
Want to rent a home? If you rent from a big company (as opposed to a landlord who owns a few rental properties), the odds are good you’ll need to provide a Social Security number on a rental application and undergo a background and credit check. Stronger credit can mean the difference between “Sorry, no thanks,” and “When can you move in?”
How can you improve your credit score?
When’s the last time you checked your credit score? It’s a good idea to do so every so often, especially before you apply to borrow money. You likely have access to yours via a bank or credit card company you already do business with; log into your account to see. And if your score is lower than you’d like, here are a few ways to bump it up and reap the benefits listed above:
- Pay all your bills on time. Payment history is the biggest piece (35%) of your FICO® Score, so paying your creditors on time every month really helps your credit score.
- Pay down debt if you can. Carrying a credit card balance is expensive, and if you’re carrying a higher percentage of your available credit than 30%, you could see a lower score as a result. Try to pay down some of what you owe.
- Check your credit report for errors. You can access your credit report for free at AnnualCreditReport.com. If you spot errors, like a delinquent account that was actually closed in good standing, you can dispute them with the credit bureau that issued the report, boosting your credit score.
Your credit score might seem like a silly three-digit number, but improving it can improve your life and finances in tangible ways. Check your score today and make a commitment to boost it.
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