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Everyone knows that your credit score determines the credit cards you’re eligible for, the loans you can get, and the interest rates you pay. But did you know that insurers also use your credit score to set premiums for auto and homeowners insurance? Landlords often have credit requirements for renters. Phone companies will use your credit score to decide who gets the best phone plans. And if you have a low credit score you may have to pay a larger deposit to access basic utilities. Credit scores are a financial tool that affects many areas of our lives, like it or not.
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A good credit score can help you save thousands. You are more likely to get lower interest rates on a mortgage, be approved for a credit card with a low APR and rewards, and get the best auto insurance deals. Bad credit, on the other hand, signals that you are a risky borrower making it tough to get a credit card and more expensive to borrow money for any purpose.
But what is a good credit score? And how do you get one? Let’s take a closer look at what you need to do to get your score in the good credit range and have it stay there.
What is a good credit score?
The FICO scoring model breaks credit scores down into five categories:
- Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Excellent: 800-850
Once your score is over 670 it’s considered “good” and you will be eligible for lower interest rates on your loans, credit cards, and mortgages.
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Why your credit score matters
Your credit score isn’t just a random number; it’s a reflection of your financial behavior and trustworthiness. It tells lenders, insurance providers, landlords, and even potential employers how reliable you are.
Easier credit approval: Lenders want assurance that you’ll repay your debts. A good credit score signifies you’re a responsible borrower, leading to quicker and easier approvals for loans and credit cards.
Lower interest rates: People with good credit are often offered lower interest rates on loans and credit cards. This can save you thousands over the life of a loan, especially with significant borrowings like mortgages.
Better loan terms: If you have good credit, you’re more likely to be offered favorable terms, such as a larger loan amount, longer repayment period, or flexible conditions.
Access perks: Many companies offer perks and rewards to individuals with high credit scores. For instance a higher credit limit or cash back on credit cards, a low fixed-rate mortgage, or no deposits on utilities.
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Best rates on insurance: Many insurance companies use credit-based insurance scoring to determine premiums for auto and homeowner’s insurance. A higher credit score can lead to lower premiums, saving you money in the long run.
Easier time renting: Landlords often require a credit score of 700 or above to qualify for an apartment. A good credit score will make the application process easier and mean you’re less likely to need a co-signer or have to pay a large security deposit.
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Grow credit with good habits
Boosting your credit score doesn’t happen overnight. However, adopting the following habits can set you on the right path.
- Pay bills on time: Nothing counts more than a positive payment history. Set up reminders or automate payments to avoid missing them.
- Light regular use of your credit accounts: It’s important to use your credit but not too much. Aim to use less than 30% of your credit limit.
- Don’t open unnecessary credit accounts: Every new account means a new inquiry on your report, which can lower your score.
- Maintain older accounts: Age of credit is crucial. Try to keep older accounts open and active as you build your score.
- Pay balances in full: There’s no need to carry a balance to build your score. If you do carry a balance, try to pay it down as quickly as possible.
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Maintain and Defend Your Score
To maintain your score, keep practicing the good credit habits that got you there in the first place. Pay your bills on time, every time. Avoid using more than 30% of your credit limit. And don’t close old accounts. Then regularly check your credit reports. If you see any errors, dispute them with the credit bureaus. Keeping your credit score high is often easier than building it up.
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The Bottom Line
Your credit score may only be a three-digit number but it affects numerous aspects of your financial life. It determines how much you’ll pay for your mortgage, if you can get the best insurance premiums, or even rent an apartment. A good credit score gives you access to high-reward credit cards, lower interest rates on loans, and better insurance premiums, potentially saving you thousands. So it’s important to understand how your credit habits might be helping or hurting your score. Once you understand your score’s importance, you can work towards improving it and setting yourself up for financial success.
Ready to improve your score? Learn how you too can get into the good credit range with 4 Easy Tricks to Improve Your Credit Score.
