A bad credit score can make you feel like you’re playing on the hardest difficulty setting. While less-than-ideal credit may not stop you from getting a credit card, personal loan, or mortgage, it can make all of these things more challenging than they have to be. On the other hand, a good credit score can pave the way to lower interest rates, higher chances of approval, and more.
Here are six of the best benefits of having good credit from The Motley Fool.
1. Getting A Loan Is Easier
Whether you seek an auto loan, mortgage, credit card, or any other type of loan, lenders need assurance that you will pay them back on the agreed-upon terms. However, your credit score is the only thing they have that offers proof of your reliability.
Your credit score is basically a report card that details the amount of debt you hold and how many bills you’ve paid late. When you have a history of missed payments or have a lot of debt, your credit score drops. But if you don’t have that much debt and an account of timely bill pay, your credit will be better, and lenders will feel more confident in your ability to pay them back.
Sometimes, you can plan when you will need a loan, but that’s not always the case. If there is an accident, a surprise medical procedure, or your car breaks down, you might require a loan to afford the unexpected cost. When you have good credit, you can get the funds you need to cover this expense much faster.
2. Your Interest Rate Is Lower
Lower interest rates are one of the most significant advantages of having good credit because it means you will save more money in the long-term. For example, if you have a high credit score and apply for a $35,000 car loan, the lender may offer you a 3.25% interest rate. On the other hand, if you visit the same lender but have bad credit, they may provide you with a 12% interest loan — a substantial increase.
Suppose, in either scenario, you have a 60-month term. If you have good credit, you will pay about $633 each month. But if your credit is low, you would be stuck paying $779 each month. By the time you paid off the loan, you would end up paying $8,760 more than if you had better credit.
3. You Can Have Your Choice Of Places To Rent
Typically, most landlords are in the process of paying off the mortgage on the property they lease. Consequently, they depend on timely rent to make their loan payment on time. To avoid falling behind on the mortgage plus the issue of eviction, landlords usually look for applicants who have good credit scores.
The rental market is highly competitive, and it can be challenging to find a home in your ideal neighborhood or near your job. When you have a high credit score, you automatically get a prime spot and increase your chances of getting approved for your desired rental.
4. You Can Improve Your Job Prospects
Did you know that a bad credit score can prevent you from getting a job? While it’s not that common — only about 30% of employers perform a credit check before hiring an applicant — you don’t want to risk getting the boot because of bad credit. If you’re going to work in the finance sector or something similar that deals with money, the likelihood that an employer will run a credit check is much higher.
5. You Have Better Leverage When Dealing With Lenders
While it’s not necessarily the right thing, lenders know that they have an advantage when individuals with bad credit scores approach them. Compared to people with better scores, lenders do not extend the same alternatives to those with bad credit.
Suppose you want a personal loan to cover the cost of remodeling your basement. In this case, the lender will see that you have a high score and immediately know that you are responsible with your money and don’t have an urgent need for their loan. If they don’t give you the interest rate or terms you want, you have the power to find a creditor that will.
6. You Can Get A Lower Insurance Rate
Research has found a correlation between credit scores and insurance losses, which is why many insurers offer better premiums to people with good credit. Data from Nationwide Insurance found that 92% of insurance companies consider credit scores when calculating car premiums. What’s more, Insurance.com found that homeowners with bad credit have a 122% higher interest rate, on average, compared to those with high scores.
How To Improve Your Credit Score
If your credit could be better, there are many ways to fix it, such as:
- Reviewing your credit report, which you can get for free at AnnualCreditReport.com
- Staying on top of your monthly bills
- Lowering your debt-to-income ratio
- Getting a secured credit card
- Manage a healthy mix of credit
- George, Dana. “6 Huge Benefits of a High Credit Score.” The Ascent, The Ascent, 19 Oct. 2020, www.fool.com/the-ascent/credit-cards/articles/6-huge-benefits-of-a-high-credit-score/.