10 Benefits of Having a Good Credit Score

Building and maintaining a good credit score can pay off in multiple ways

Having a good credit score can make life a lot easier. Not only does it make getting approved for a loan or credit card easier, but it can help you qualify for the best interest rates. You may also run into fewer hurdles when renting an apartment or applying for a new job. 

Good credit has all these benefits because it suggests to lenders and other interested parties that you pay your bills on time. Your credit score represents how you’ve handled credit in the past, and a good score indicates that you manage your money well. 

Here’s a closer look at what constitutes a good credit score, along with the various benefits of having one.

Key Takeaways

• A good credit score can open the door to faster loan approval, better interest rates, and higher credit limits.
• Poor credit, on the other hand, can limit your options for loans, credit cards, apartment rentals, and even some employment opportunities.
• To build a good credit score, focus on paying your bills on time and keeping your credit utilization low.
• Keep an eye on your credit with the help of credit monitoring services, some of which are free.

Why Is It Important to Have a Good Credit Score?

According to FICO, the average FICO credit score in the U.S. was 717 in October 2023, the most recent month for which data is available. That falls toward the high end of the “good” credit score tier. 

FICO and VantageScore are the two most popular scoring brands. FICO scores are more commonly used by lenders, but it’s generally easier for consumers to check their VantageScores. Here’s a look at how FICO scores and VantageScores break down:

Your credit score is based on multiple factors, including your payment history and how much of your available credit you actually use. Lenders look at your score when evaluating your application for a loan or credit card. A good credit score suggests that you’ve managed credit well in the past and are likely to pay back borrowed money. 

Here’s a closer look at the benefits that can come with having good credit. 

Better Chances of Credit Card and Loan Approval

A poor credit score can make it difficult to qualify for a credit card or loan. You may be limited to a secured credit card, which requires a deposit upfront, or a co-signed loan, which may be a financial burden to your co-signer. 

With a good credit score, you’ll have a better chance of being approved for the best credit cards or the loan you want. You’ll still have to meet other requirements, such as having an acceptable income and debt-to-income ratio, but your credit score won’t stand in the way of approval. 

Faster Approval

A good credit score could shorten the timeline for credit card and loan approval. Some credit card companies send out “pre-approved” offers after checking your score via a soft inquiry, and lenders may let you pre-qualify for a loan online.

These offers might more accurately be called “pre-screened,” since you’ll still have to fill out an application. But you may be approved more quickly since the company already knows you have good credit. 

Lower Interest Rates

Interest is the cost you pay to borrow money. Lenders usually offer a range of rates for a particular loan product, with the lowest rates going to borrowers who have the strongest credit. 

Qualifying for a low rate on a loan can make a huge difference in your cost of borrowing. For example, a lower interest rate on a mortgage could save you hundreds or even thousands of dollars over the life of the loan. Plus, paying less in interest may enable you to pay back your debt faster, which would free up more of your budget for other priorities. 

Higher Credit Limits

A good credit score indicates that you’re likely to pay back borrowed money on time, so credit card companies may be willing to extend you a higher credit limit. This can actually make it easier to maintain a better credit score because you may have more available credit. If you get a high credit limit, however, be careful not to spend more than you can afford to pay back, or you risk racking up fees and interest and damaging your good credit. 

Higher Loan Amounts

Lenders may offer higher loan amounts to borrowers with good credit scores. Some personal loan providers, like SoFi for instance, lend as much as $100,000, but may limit the amount offered to borrowers with fair, poor, or no credit. 

Better Insurance Rates

Insurance companies often consider your credit score when evaluating your application and assigning your premiums for home and car insurance. A good credit score can help you qualify for discounts on your coverage.

However, some states have laws about how insurers can use credit when considering your application or setting rates—or whether they’re allowed to consider it at all. For example, insurers are not allowed to consider your credit when setting your premium for home insurance or when deciding whether to cancel your policy. If you’re not sure about the laws where you live, check with your state’s department of insurance. 

Better Credit Card Rewards

Rewards credit cards offer a variety of useful perks, such as travel points and cash back. The best cards are typically reserved for borrowers with good or excellent credit. If you pay back your credit card balance in full each month, you can avoid interest charges while enjoying rewards on your purchases. 

No Utility Deposits

Utility companies, such as gas, electric, and water companies, may require a security deposit of a few hundred dollars upfront if you have weak credit. A good credit score means you may not have to pay this deposit, which is one fewer expense and item to deal with when you move homes. 

Better Rental Options

A prospective landlord may check your credit when you apply to rent a home. Having a good credit score can show them that you have a history of paying bills on time, which could help them feel more confident that you’ll pay your rent, which can improve your odds of approval. 

Better Chance of Getting Some Jobs

Some employers will ask to check your credit when you apply for a job. A damaged credit history could affect your chances of getting hired. However, 12 states and several other jurisdictions, such as New York City and Washington, D.C. have legislation restricting the way employers can use credit to make hiring decisions.

Important

Companies have to get your written consent before conducting employment credit checks, and must tell you if something in your credit report is the reason they decide not to hire you.

Frequently Asked Questions (FAQs)

What Is a Good Credit Utilization Ratio?

It’s generally a good idea to keep your credit utilization ratio below 30%, but a lower ratio is even better. Your credit utilization, or the amount of credit you’re using compared to the total of all your credit limits, makes up 30% of your FICO score. 

What Credit Score Do Landlords Look For?

There’s no universal minimum credit score that landlords look for. However, some landlords may prefer applicants with higher scores, such as those in the good, very good, or exceptional ranges. Landlords in more competitive areas or new buildings may require higher scores than those in less competitive areas or buildings.  

What Is Considered a Perfect Credit Score?

The highest possible credit score is 850, but a score of 800 or higher is considered exceptional. 

How Can I Know My Credit Score?

There are several ways you can check your credit score, including online at myFICO.com, with a credit monitoring service, or through your credit card company, if available. You can also review your credit reports from AnnualCreditReport.com, though they won’t show your score.

Why Did My Credit Score Drop?

There are many reasons a credit score could drop, such as if you’ve recently made late payments on a loan or increased your credit utilization. You could also see your score decrease if you apply for new credit with a lender that runs a hard credit inquiry or if you open a new account, which increases your “new credit” and decreases your average age of accounts. If nothing has changed in your financial situation, a drop in your credit score could be the result of inaccurate information or identity theft, so it’s wise to check your credit reports.  

The Bottom Line

From faster loan approval to lower interest rates, there are a variety of benefits to having (and maintaining) a good credit score. If you’re looking to improve your score, be sure to pay your bills on time and keep your credit utilization ratio low. 

If you have credit accounts in good standing, avoid closing them so as not to shorten your credit history and potentially increase your credit utilization (unless they have unwanted fees or issues). And when applying for new credit, try to keep your applications to a short window of time to prevent multiple hard credit inquiries from dinging your score. 

If you’re starting from scratch, here’s how to build a good credit score with no credit history. 

Read the original article on Investopedia.