9 benefits of good credit and how it can help you financially – Forbes Advisor

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Your credit score is a measure of your overall financial health and creditworthiness. Because your credit is a key part of your financial identity, it’s essential to build good credit early on. While a bad score can make your biggest financial purchases more expensive, a good credit score can give you a competitive edge when making loan decisions.

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Forbes Advisor describes nine benefits of good credit below.

1. Lower interest rates

One of the main advantages of good credit is the lower interest rates on your loans. When you apply for a loan, such as a mortgage or credit card, a lender or provider usually uses your credit score to determine your interest rate. The lowest rates are reserved for applicants with the highest scores; applicants with lower credit scores generally receive higher interest rates.

To put this in perspective, the estimated average interest rates for personal loans based on VantageScore risk levels, according to Experian, are in the table below. Please note that lenders determine and set an individual’s interest rate on a particular loan. The prices provided are estimates.

2. Better probability of being eligible for a loan or credit

If you’ve been denied a loan or a credit card, you know how painful it is. It can be a challenge if you are denied financing for something you need, such as a mortgage or a car. And it can be devastating if you are not approved for other loans, such as private student loans which help many people afford college. But with a better credit score, there is a better chance of getting approved. Of course, your credit score is not the only factor that lenders consider, but it is an important factor.

3. Approval for certain work

Some jobs, such as those that work with cash or in security clearance positions, require a personal credit check. This is to make sure that you are able to manage your finances or that you are not vulnerable to corruption due to financial problems. If you have a bad credit rating, you may not be eligible for certain positions.

4. Larger credit card and loan limits

If you have a good credit rating, you will be eligible for larger loans, such as the jumbo loans needed to take out a mortgage in certain areas with high cost of living. You can also benefit from higher credit card limits.

For example, according to a recent Experimental study, the average baby boomer had a credit score of 731 and a credit card limit of almost $ 40,000. But for millennials, the average person had a lower credit score of 668 and a lower credit limit of about $ 20,000. It should be noted that baby boomers have had more time to accumulate good credit since the length of credit history contributes to your overall score.

5. Better credit card rewards

Along with a higher credit limit, a better credit score also unlocks a wider variety of credit cards. Most of the best rewards cards require excellent credit for approval. This includes travel rewards cards that you can use to fully fund your vacation and cash back rewards cards that allow you to recoup a percentage of your spending.

6. Easier approval for rental properties

Even if you never plan to buy a home, you will still need a good credit score. A lot of people don’t realize it, but your credit score is a factor that landlords consider in your rental application. If you have a good credit rating, you are more likely to be approved as a tenant because a history of on-time payment behavior is likely to be more appealing to a landlord than to someone with multiple defaults. . Otherwise, you may have to pay a larger down payment, accept a short-term lease, or even be refused accommodation.

7. Lower insurance rates

Good credit can also save money on your insurance. Insurance companies use your credit score to decide whether to accept you as a customer and how much to charge you, although some officials believe this practice is unfair. According to a insurance quote study, people with fair credit (a FICO score of 580 to 669) paid 39% more on their auto insurance premiums. People with poor credit (a FICO score below 580) had it even worse, paying 103% more.

8. Avoid security deposits on utilities

A good credit score can also be important in activating your utilities. If you have a good credit rating, providers are likely to activate your utilities with minimal hassle. But if your credit is low, they may require a deposit from you, or even ask someone to legally agree to pay your bill if you don’t, like finding someone to co-sign a loan.

9. Negotiating power over loan terms

Not only can you get lower interest rates with a better credit rating, but you can also use it as a bargaining chip in the mortgage negotiation process. To do this, you will need to pre-qualify and check your rate with several lenders. Then you can submit your rate estimate to different lenders to see if they can offer you better terms, either lowering the interest rate even further or removing the loan fees.

Final result

Building and maintaining a strong credit profile is crucial because your credit score plays a key role in most loan decisions. If your credit rating is low, take the time to improve your credit rating to prepare for any future loan or rental applications.

Increase your FICO® score instantly with Experian Boost

Experian can help you increase your FICO® score based on paying bills like your phone, utilities, and popular streaming services. Results may vary. See the site for more details.

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