Do people understand the benefits of a good credit score? Everyone knows your credit score is important, but what exactly are the benefits?
In the United States, 28% of its citizens rely on credit when running out of money. While it’s good to use your credit, it’s not always wise to carry over a balance from month to month. If you can’t pay it back, your credit score will take a hit.
Most Americans know that your credit score is a golden ticket to a more manageable financial life. Whether you’re looking to maintain your credit score or increase it, the right motivation is essential.
That’s why we’re going to talk about the benefits of a good credit score. To keep you motivated to strive for more and let you know what’s waiting on the other side.
7 Unexpected Benefits of a Good Credit Score
We all know that having a good credit score is something everyone should want. If you need some extra motivation to increase your credit score or are curious what a high credit score will mean for you, here are the unexpected benefits of a good credit score.
1. Starting and Owning a Business
According to Forbes, consumers owed $323 billion on personal loans in 2020. The banks limited loan opportunities because of the increasing risk of default.
On a different note, loan applicants with good credit scores will have a much better chance of receiving an approval for the funds needed to set up a business or start a side hustle. Though some lenders may consider people with lower credit ratings, lenders have a habit of charging them with a higher APR (Annual Percentage Rate).
2. Less Hassle Getting Approvals
Imagine being denied something as common as a network provider subscription. Applications for basic household utilities and other post-paid subscriptions usually require credit reports. It also applies when you’re going to rent a space and need to pass a rental credit check, where the approval will depend on your ability to meet monthly payments on time.
While having a good credit score doesn’t mean you’ll get approved for every loan, it can increase the chances of approval. You can ask for new credit or new loans, and they will be quicker to grant it to you when you have a good credit score.
3. Better Risk Means Lower Interest Rates
Aside from having a better shot when applying for loans, you won’t have to worry about being charged exuberant amounts of interest with a good credit score.
Poor credit scores can lead to having the loan denied or charged at a much higher rate. Lenders assume a low credit score means it’s probably harder to settle the credit on time. It brings a higher risk that they need to offset with higher charges.
High credit scores imply that you have settled outstanding credit on time in the past. That’s why you’re charged lower interest rates on credit card balances you carry or loans you have.
It doesn’t matter if you’re looking for a personal loan, mortgage, student loan, or are carrying a balance on your credit card. Your credit score influences the interest rates at most places.
When you’re charged with a lower interest rate, you could pay off your debt faster and use the money toward other things.
4. Lower Insurance Rates
When you’re getting your mortgage or your car loan for a lower interest rate, you can also save on the insurance when you have a high credit score.
Insurance companies have their way of calculating the probability that you will make a claim, their so-called “insurance score.” The input comes from your credit report, and the variations between the two are minimal.
Insurance companies believe that when you have a lower credit score, you will file more claims. Whether that’s true or not, they base their decisions on it.
If you have a good credit score, be sure to compare insurance companies before you settle for one.
5. Great Credit Card Deals
If you have a good credit history and want to continue increasing it, know that you can get excellent credit card deals when you have a strong credit score.
These credit cards can have lower interest, offer credit card rewards, airline miles, or cash back on your purchases. It will make sure that you keep using your credit card, which will help you keep your credit score up. Plus, it will help you save money with cash back rewards.
The important thing here is that you make payments when they’re due and try to close as much balance as you can at the end of the month.
6. Room To Negotiate
It’s always better to negotiate. That’s also the case with your credit score.
When you’re looking for something specific, be sure to ask around and see if anyone can offer you a competitive rate. If you have a high credit score, you can ask companies for a price decrease or an interest rate decrease because you always pay on time and have a good credit history.
Companies have less room for negotiation when you have a lower credit score because specific standards and procedures need to follow.
7. That Special Requirement When Landing A Job
According to CNBC, 72% of employers still do background checks, and 29% of those employers check credit reports. If a poor credit report reveals bad financial habits, it may influence the decision to hire someone.
Of course, this depends entirely on the position. When you’re handling other people’s money or holding a public function, it’s more relevant than when you’re behind a computer doing web development.
Some Consumer Facts:
- Around 21% of the American population has a good FICO® credit score.
- In 2020, the average credit score in the US was 710. This is a record high, despite the pandemic.
- Between 2019 and 2020, the average credit card debt decreased by 14%, from $6,194 to $5,315.
- 35% of your credit score is based on Payment History. This may include payment information on credit cards, mortgages, installment loans (auto loans or student loans), retail accounts, and consumer finance company accounts.
There are a lot of ways to keep ourselves within the boundaries of our spending capabilities. Set a goal, spend less than you earn by creating a budget, and maintain a good credit score.
A good credit score can mean unexpected benefits like quicker approvals for credit or loans, utilities, phone plans, and even renting a place. You will get better credit card deals, pay lower interest, get lower insurance rates, and can get a loan quicker to start your own business. When you have a high credit score, make sure you negotiate your rates down, as that can save you even more. Employers will also value a good credit report, which may get you the job quicker.
If you want all of these benefits and aren’t sure how to get there, here’s tips on how to improve your credit score.