Despite what many will have you believe, you can actually go about life just fine even with bad credit. Sure, it won’t be easy. Especially considering that your credit score impacts many aspects of your life, including getting loans, renting, and employment.
With that said, however, financial experts agree that the biggest disadvantage to having a good credit score is the fact that it’s not cheap. Yes, it pays to aim for and maintain a good credit score.
What Is A “Good” Credit Score?
A credit score is a three-digit number that typically ranges between 300 and 850. This score represents the statistical likelihood you’ll repay a debt on time based on your credit history.
Different credit-scoring models will have different definitions of a “good” credit score. For FICO scores, the credit score most lenders use, a “good” score is one that falls between the 661-780 range.
How Much Money Will You Save?
The higher your credit score, the more money you’ll save. Specifically, the more money you’ll save in interest payments over the life of a loan. To better understand how your credit score affects interest, let’s assume you’re applying for a $300,000 mortgage.
If you have a credit score between 620 and 639, a lender may give you a 4.9% interest rate. In 30 years, you’ll pay $273,184.86 in interest. In total, you’ll pay $690,809.86 for your $300,000 mortgage loan.
Having a better score of, let’s say, around 700 to 759, may allow you to get a 3.5% interest rate. While the difference is may not seem like a lot, a 1.4% reduction in the interest rate translates to you saving $90,341.6 on your mortgage.
Other Ways A Good Credit Score Saves You Money
Credit scores are mainly used by financial institutions, like banks and other lenders, to determine the risk potential of a borrower. However, other entities, like landlords, utility companies, and even employers, use credit scores to make decisions.
A less-than-desirable credit score may mean you’ll pay a higher security deposit when you rent a home. The same may also apply when you’re applying for utilities, such as phone and internet.
Insurance companies also use credit scores to determine the premiums on your insurance policies. Conversely, employers check applicant credit scores to decide who to hire and who not to hire.
How To Get A Good Credit Score
- Pay on time, every time. The most important factor affecting your credit score is your payment history. This is because your payment history is the best indicator of the likelihood you’ll pay a debt on time. A history of on-time payments will greatly improve your credit score.
- Borrow less. Another key credit-scoring factor is the amount you owe. In fact, it accounts for 30% of your credit score. Excessive amounts of debt will negatively impact your credit score. Paying them off or as much as possible can help you get a good credit score.
- Keep your accounts open. Credit-scoring models consider how long you’ve been using credit. To get a good credit score, you’ll need to establish a seasoned credit history. Keep your accounts open even if you don’t use them.
- Limit your applications for new credit. Whenever you apply for a loan or credit card, an inquiry appears on your credit report. This inquiry results in a small and temporary negative impact on your credit score. Too many of them, however, can have a much larger effect.
The Bottom Line
Do you really save money with a higher credit score? Yes. A higher credit score mainly saves you money by allowing you to get lower interest rates. However, a better score can also save you money by helping you get better terms on housing, utilities, and insurance.
Fortunately, getting a good credit score is not as hard as you may think. In fact, it may only take removing negative information from your credit report to do so. Call us at 888-799-7267 to schedule a Free Credit Consultation.
