Like a high GPA, a credit score can open doors to new opportunities, such as qualifying for loans, credit cards, and other financial products with low interest rates. Experian reports that a credit score of 700 or higher puts you in the “good” category, and a score of 800 or higher, puts you in the “exceptional” category.
In this article, we’ll explore the importance of your credit and why maintaining a good credit score can help set you up for financial success.
- Access to credit cards
- Access to loans
- Better employment opportunities
- Housing options
- Lower insurance rates
Access to credit cards
Credit cards allow you to enjoy enticing perks like cashback, reward points, and more. Additionally, credit cards enable you to prove yourself as a trustworthy borrower and improve your score as you continue to pay your bill on time.
Credit card companies rely on your credit score to determine your creditworthiness as a borrower. A high credit score indicates that you’re responsible with credit and can make timely payments consistently.
A strong credit profile may qualify you for higher credit limits, allowing you to borrow more without exceeding your credit utilization ratio. In addition, you may be eligible for lower interest rates, which will save you a ton of money if you carry a balance.
Access to loans
Loans can help you pay for big purchases such as a car, a home, a business, or an education. You can also leverage it as a wealth-building tool. For instance, a mortgage can help you buy a home that will appreciate or generate cash flow if you’re investing in real estate. And if you’re starting a business, a loan can give you the boost you need to get your company up and running.
If you have a good credit history, lenders are more willing to loan you money at higher amounts and better rates. Like credit cards, lower interest rates can save you money over time. For example, a $10,000 car loan, with a 60-month term and a 4% interest rate, will cost you slightly over $5,000 in interest once you have paid off your loan. Meanwhile, a car loan with an 8% interest will result in more than double that amount.
Better employment opportunities
While exceedingly rare, some employers can look at your credit report as part of their hiring process. A 2018 HR.com report sponsored by the National Association of Background Screeners found that 95% of companies conduct background checks on potential employees, and 16% pull credit reports.
Fortunately, employers can’t access your credit report without your written consent. Also, they won’t be able to see your credit score, but they will see an overall picture of your financial responsibility and assess your reliability. So, it’s crucial to maintain good credit habits to set yourself up for success in your career.
Provides housing options
As mentioned earlier, a credit score is crucial to secure a mortgage with favorable terms and interest rates. However, many renters are unaware that landlords often check credit scores as part of the rental application market.
A good credit score indicates that you may be a responsible tenant who is less likely to default on their payments. Although there is no universal standard for what credit score is acceptable for landlords, Rentcafe conducted a study in 2020 and found that the average credit score for renters in the US was 638. Shooting for higher improves your chances of approval for an apartment and even helps you negotiate better rental terms.
Lower insurance rates
Insurance is an essential financial tool to protect you in the worst-case scenario. Whether you’re in the market for a car, homeowners, renters, pet, or a life insurance policy, maintaining a good credit score is imperative to get the lowest monthly rates.
Underwriters determine your eligibility and insurance premiums by assessing your risk. Insurers will evaluate your risk level through several factors, such as your claim history, age, gender, location, and credit score. However, it’s important to note that not all states allow insurance companies to use your credit score as a factor in assessing your rates.
In states that allow credit-based insurance scores, insurers can pull your credit history to predict your likelihood of filing a claim. This means that maintaining a good credit score can not only help you qualify for insurance but it can also help you get the lowest monthly rates possible.
Take control of your financial future today
Your credit score evidently plays a crucial role in various aspects of your financial life, from getting approved for loans and credit cards to renting an apartment. Maintaining a high credit score will result in lower interest rates and better terms. Meanwhile a poor credit score can limit your options and make it difficult to tap financial services essential for wealth building.
We recommend regularly checking your credit report to check for inaccuracies and identify areas of improvement. You can obtain your credit report for all three bureaus annually by visiting annualcreditreport.com. If you need to improve your credit score, ensure you pay your bills on time, keep your credit utilization below 30%, and dispute any errors on your credit report.