The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Your credit score is a three-digit number that’s meant to reflect how reliable you are as a borrower. Lenders and creditors use this number to determine if you should be approved for loans or credit and at what interest rate and terms.
The benefits of a good credit score are clear. A high credit score opens new financial (and other lifestyle) opportunities. Additionally, good credit can save you money—often large amounts when it comes to bigger loans such as mortgages. Keep reading for the seven major benefits of having a good credit score.
What is a good credit score?
There are two major credit scoring models: FICO and VantageScore. When a lender or creditor needs to evaluate your credit score, they’ll pull your individual score based on one of these models. While FICO scores and VantageScores are determined by similar factors, such as payment history, each scoring model gives different weight to each factor. This means that a person’s credit score might differ depending on which scoring model is used.
A FICO score ranges from 300 to 850. The good and above credit score rankings for FICO are:
- 670 – 739: Good
- 740 – 799: Very Good
- 800 – 850: Exceptional
A VantageScore score also ranges from 300 to 850. The good and above credit score rankings for VantageScore are:
- 601 – 660: Fair
- 661 – 780: Good
- 781 – 850: Excellent
Now that you understand what ranking you need to have to qualify for a good credit score, let’s look at the benefits of a good credit score.
1. Better loan terms
The biggest benefit of having a great credit score is usually getting more favorable interest rates. The higher your credit score is, the lower your interest rate will be on loans and credit, including mortgages, credit cards, auto loans and personal loans.
Let’s look at an example. According to FICO, someone with an exceptional FICO score in the range of 760 – 850 could have secured an average mortgage interest rate of 3.29 percent in January 2022. During the same time, a person with a fair FICO score between 620 and 639 would only be able to secure an average mortgage interest rate of 4.87 percent.
Let’s assume both people took out a $400,000 mortgage for 30 years. The individual with an exceptional credit score would have a monthly payment of $1,749 and would pay $229,493 in interest over the life of the loan. In comparison, the person with poor credit would have a monthly payment of $2,117 and would pay $360,966 in interest over the mortgage term. That’s a noteworthy difference of over $131,473 in interest alone.
In addition to better interest rates, a good credit score can secure you better loan terms in other ways. For example, you may be able to negotiate to have loan fees waived or receive more leniency when making late payments.
2. Better credit card offers
Individuals with better credit are often offered higher credit limits. Higher credit limits can help individuals make big purchases or cover emergency expenses if necessary, and they can also help keep a person’s credit utilization low. Credit utilization is one of the five factors that make up your credit score, accounting for 30 percent of your FICO score. Your credit utilization ratio is the amount of credit available to you every month versus the amount you actually use.
Someone with $500 in expenses a month and a credit card limit of $1,000 will have a credit utilization of 50 percent, which will likely bring their credit score down. In comparison, someone with the same expenses and a $5,000 credit card limit will only have a credit utilization of 10 percent and may see their credit score benefit as a result.
3. More credit card rewards and perks
In addition to better interest rates and higher credit limits, a good credit score can help you access more prestigious cards that come with better perks and reward programs. Some of the credit cards with the best reward or cashback incentives require a minimum credit score—often a score of 650 or higher.
The right credit card program can mean hundreds in cash back over the year, free goods, gift cards or even a fully funded vacation. You just want to make sure to take advantage of any credit card rewards available to you.
4. More housing options
Your credit can play a role in helping you secure housing—both when buying and renting. When it comes to renting, some landlords run a credit check and only approve tenants with a strong credit score. If you have a low credit score, your landlord may worry that you’ll have trouble making rent payments on time and deny your application.
When it comes to getting a mortgage, a strong credit score can:
- Ensure you’re approved for the loan
- Help you get approved faster
- Help you get approved for a larger amount
- Help you get a lower interest rate and better loan terms
5. Better insurance rates
Insurance companies review your credit score when deciding if they’ll accept you as a customer and what rate they’ll give you. This means solid credit can help you save money on your homeowner’s insurance, renter’s insurance or car insurance.
A study from InsuranceQuotes found that, in Michigan, someone with average credit will see a 68 percent increase in their premium compared to someone with excellent credit.
Note that using credit scores to determine insurance packages has been deemed by some as an unfair practice. Maryland has banned credit-based home insurance scoring, while Hawaii has banned auto insurance scoring. Other states, such as Massachusetts and California, have banned the practice entirely for all types of insurance.
6. More job prospects
Some states allow employers to request a credit check from job applicants. Of course, a job offer can’t be guaranteed, but your credit score might be the deciding factor for a potential employer. Someone with a low score, missed payments and delinquencies may be seen as a risky hire.
The good news is that you’ll know when a potential employer runs a credit check as they need to receive your approval to do so. We recommend you check your scores and reports beforehand so you know what they’ll be seeing.
7. Easier access to utilities
When you sign up for utilities, such as electricity and water, the company will often run a credit check to see your track record with payments. If you have a good credit score, you can usually get utilities turned on quickly and can even potentially avoid utility deposits.
In contrast, those with poor credit may find it more challenging to get their utilities turned on, be asked to pay a deposit or even be asked to provide a cosigner who’ll be responsible for missed payments.
How can you improve your credit?
There are several steps you can take to improve your credit. These include:
- Keeping credit utilization low
- Making payments on time
- Being patient and consistent with your efforts
- Checking your credit score and credit reports often
- Addressing any inaccurate negative items that you see—and using the help of a credit repair organization like Lexington Law Firm when filing disputes
A healthy credit score can save you money and open the door to many financial opportunities. While it may take a while to see some improvements, building better credit habits will be an asset that will help you long term. Try to prioritize improving your credit as soon as possible so you can start seeing the benefits sooner, too. If you’re unsure where to start, you don’t have to do this alone. Consider using the professional credit repair services Lexington Law Firm offers to get assistance with your credit repair journey.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
