Most people know that it’s no myth that having a good credit score is a good thing. But what fewer people realize is how many benefits you’ll enjoy when you have a strong credit score.
What constitutes a good credit score isn’t always clear-cut. Instead, different creditors and parties may have different numbers in mind. They use these numbers to decide which consumers they feel are trustworthy and able to pay back a debt and which are not.
FICO credit scores, which are one of the most commonly used scores, range from 300 to 850. For the most part, scores that fall in the range of 670 to 800 are considered good. Those that fall between 800 and 850 are exceptional. Scores between 580 and 669 are considered fair, while those falling below 579 are labeled as poor.
Nearly 70 percent of all Americans have a good FICO score. But whether your score falls within that range or a bit lower on the scale, it’s important to understand the benefits you could be enjoying with a higher score. Keep reading as we take a closer look at some of those benefits.
When most people think about credit checks, a few situations tend to come to mind. You might think about your score being checked when applying for a mortgage. Or, perhaps you consider how your credit score could affect the interest rate you get when purchasing a new vehicle.
But your credit score is actually used by a variety of parties, whether you realize it or not. Alongside banks and loan providers, credit unions, student loan providers, and even landlords can access your credit score, and in some cases, a portion of your credit report. That means that a higher score can increase your chances of getting the approval that you’re looking for.
While a landlord won’t be able to look at your entire credit report, when you approve a credit check, they will be able to see your score. A low score could leave them worried that you won’t be able to pay the rent or that you might struggle to pay on time. If they have strict requirements for their background checks on prospective tenants or if they have plenty of other applicants, a low score could cause them to turn you down for the rental.
Qualify for a Lower Interest Rate
Getting approval for a rental or loan is just the start. Having a strong credit score can also help you get a lower interest rate. There isn’t a standard ratio for the credit score that you’ll need in order to qualify for a specific interest rate. However, the stronger your credit score, the lower the interest rate you’re likely to qualify for.
This rule applies to a number of types of loans that you might apply for, including:
- Non-government student loans
- Auto loans
- Loans for recreational vehicles like RVs or boats
- Personal loans
You Need Credit to Get Credit
Credit cards, that is. There are a number of reasons why you might try to leverage your good credit score to get additional credit cards. Perhaps you want to use a credit card to help you finance starting your own business. Or you want to start earning credit card points that you can use to pay for travel or other expenses in your quest to improve your finances (at Credit Innovation Group, we can help you do just that, and begin building credit and improving your score).
No matter the reason, having a strong credit score can help. To start with, too low of a score can make it difficult to qualify for any credit card, including those with high-interest rates. But a good score might cause credit card companies to pre-approve you for a card or to offer you better promotional terms on new cards as a reward for your great score and as a sign that they trust you.
Score a Lower Rate on Your Insurance
While some prohibit it, many states allow insurance companies to use credit-based scoring. This means that insurance companies can use a consumer’s credit score to determine their risk level. Instead of using a credit score to determine whether or not a borrower will be able to pay back a debt, an insurance company will use your score to decide how likely it is that you will claim an insurance loss in the future.
It is strange to think that your financial history is used to determine whether you might file a claim on your homeowners or car insurance. But research has previously shown the two to be connected. In most cases, a lower credit score has been connected to an increased chance of filing insurance claims.
This can spell bad news to those with low credit scores. However, if you’ve worked hard to raise your credit score—perhaps wilth a little expert help from Credit Innovation Group—and your score is strong, you may be able to reap an unexpected benefit; a better rate on your insurance.
It’s against the law for insurance companies to raise your premiums because of a bad credit score, or to deny coverage or cancel a policy for the same reason. Other factors beyond your credit score also go into determining your insurance rate and whether a company will offer you coverage. However, studies have shown that using credit-based scoring does lead to lower premiums for those who do have better credit scores.
Land Your Dream Job
Insurance companies aren’t the only unexpected parties to check your credit score. Many people don’t realize that employers may ask to run a credit check as well.
While a potential employer will have limited access to details about your credit score and financial history, they may still use the information that they can access to determine whether you might be a good choice for hire. According to the Fair Credit Reporting Act, an employer isn’t able to see your exact score. Instead, they can access details from your report. This includes details such as how many open credit lines you have and what kind of credit they are. It might also include the total of your student loans, whether you’ve foreclosed on a property in the past, and whether you’ve missed payments.
The idea is that they can use this information to better determine whether you are a trustworthy person. They might not care about the total of your mortgage or whether you have credit card bills. But most employers will care if you’ve had multiple missed payments or declared bankruptcy. They may use these factors, alongside other information from your resume, to decide whether you are someone they want to have on your team.
Improving Your Credit Score
A strong credit score can open up all kinds of doors. From lower interest rates to better insurance premiums, there are a number of benefits you might be missing out on. If you’re struggling to raise your score, we can help. Check out our pricing model to learn more about how we can help you start working towards a brighter financial future.