The Benefits of Good Credit

By Doug Matus

Maintaining good credit can be a lot of work. For the credit bureaus' scoring models to give you a good credit rating, avoid abusing credit cards, keep your debt under control, diligently pay bills on time, and regularly review your credit report for errors.

Since it’s possible to make it through life with a fair or poor credit score, many people rank credit scores fairly low on their list of priorities.

A good credit history and high credit score come with many benefits, however. From lower interest on a mortgage or car loan to better car insurance rates, good credit can save you thousands of dollars over the course of your life.

In particular, these five benefits of good credit should inspire anyone to reevaluate the importance of their scores.

1. Better Credit Card Deals

Credit-conscious consumers understand that the best credit cards are only available to those with excellent credit. Once you’ve proven your credit worthiness, credit card companies are going to be more likely to offer you cards with no annual fee, a higher credit limit, and credit card rewards.

According to Nedalee Thomas, a financial expert and money coach, a person with great credit could have between $11,000 to $30,000 available on a single card. Compare this to the $500 to $1,000 limit someone with poor credit history can get with a secured credit card, and the value of the increased buying power becomes obvious.

If you're looking at improving your credit, keep an eye on your credit utilization ratio, which is the percentage of available credit you are using each month. Having a higher credit limit can make it easier to manage that utilization ratio if you don't increase your expenses along with your increased credit limit. A good rule of thumb is to keep your utilization lower than 30% of available credit, though some credit experts even advise keeping it below 10%.

When it comes to credit cards, an excellent credit history unlocks more than higher limits. The best perks, like cash-back bonuses and rewards points, can save you money - and encourage you to use your card. Regular card use, when combined with on-time monthly payment, can help lift your credit scores even higher. On the other hand, missing or being late on monthly payments and accruing credit card debt is a sure path to bad credit.

“There are plenty of perks that come along with having a good credit score,” says David Bakke, finance expert at Money Crashers. “First, you’ll qualify for lower interest rates. Plus, you’ll be eligible for better cards with benefits and advantages reserved only for those with high credit scores.”

2. Easier Rentals and Leases

Similar to lenders, a potential landlord will review your financial background as a measure of your trustworthiness by asking for and reviewing your credit report. If your credit history shows problems with payments, a landlord may be more skeptical about whether you can pay your rent on time.

“Another benefit of having great credit is the terms you can receive when renting an apartment,” says Brandon Schroth, digital analyst on behalf of Australian site Personal Loans for You. “Some landlords will charge a higher security deposit to those who have poor credit.”

Even if you’re not in the market for a new apartment, consider the benefits of good credit when you go on vacation. If you plan to go somewhere for an extended stay, good credit can allow you to negotiate fees and security deposits for a vacation rental.

If you plan to lease a car, you should guard your credit as a precious resource. High scores give you extra buying power, and dealers will regularly offer lower financing to customers with excellent credit. You can also save money on insurance for your new ride, as insurance companies regularly run credit checks as part of the coverage process. See more about insurance credit scores.

3. Get a Better Job

Though they must receive your permission, many employers will now check your credit scores as part of the application process. From the employer’s perspective, a credit report can yield valuable insights into a potential hire’s reliability and attention to detail. Credit reports can also help differentiate between equally qualified candidates for competitive positions.

Items that can raise red flags include frequent late payments and records of collection; in other words, the exact things you should avoid for the maintenance of a high credit score. Though your credit probably won’t singlehandedly disqualify you from a job, it can certainly drive employers to hesitate — and make the offer to someone else. Read more about pre-employment credit checks.

4. Save Money on Your Mortgage

Mortgage originators are much more likely to provide a beneficial interest rate for your mortgage if you have a clean credit history and an excellent credit score. Considering the size of these loans, the importance of favorable loan terms can't be overstated.

“We all know that higher credit scores mean lower interest rates for savvy consumers,” says Jennifer Brazer of Complete Controller. “Even a point or two less can provide a great advantage. Think about the impact of an interest rate on a mortgage: over the life of the loan, it can result in thousands to tens of thousands of dollars in savings.”

A mortgage represents a lengthy partnership between a borrower and a lender. Because of this, lenders will often compete for the most attractive candidates, which allows those with good credit to shop around for deals. If you already have a mortgage, high credit scores can pay further dividends should you ever want to refinance.

5. The Power of Negotiation

A good credit score can also give you leverage at the negotiating table. If someone with stellar credit applies for a personal loan or mortgage, they become a hot commodity on the lender market. Banks and other financial institutions want stable assets, and prefer investments with guaranteed returns. In the case of a mortgage, you become a candidate for a relationship that could last decades.

Since loans can represent serious money for lenders, they will compete for the ability to do business with the most attractive candidates. Good credit suggests reliability and financial stability, which indicate guaranteed payback for the bank. Savvy consumers leverage this power into lower interest rates, higher credit lines, and beneficial repayment plans. Never feel afraid to use your credit score as leverage; after all, you’ve had to work hard to keep those numbers high.

About the Author

Doug Matus is a freelance writer who frequently contributes to Self.

Written on May 27, 2017

Self is a venture-backed startup that helps people build credit and savings.
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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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