A few vital pieces of information will really come in handy in your adult life. These include your Social Security number, driver’s license number, and credit score. Financial expert Tori Dunlap calls your credit score your “grower GPA,” and that assessment is spot-on.
Credit scores (everyone has more than one credit score because three consumer credit bureaus compile information about your financial history) fall in the range of 300 to 850. Whether you have good credit depends on where you fall on the scale.
According to The Ascent’s research on Americans’ credit scores, the average credit score is 714, which is considered really good credit. Here are a few ways having that (for a FICO® Score, good credit is 670 and above) can save you money and actually make your life easier.
1. A cheaper mortgage loan
While mortgages can hardly be called “cheap” these days (at the time of this writing, the average rate on a 30-year fixed-rate loan is about 8%, according to Freddie Mac), having good credit will help you get a better loan. overall rate. Since a home is a big purchase (perhaps the largest purchase you’ll ever make) and mortgages are paid off over a long period of time (usually 15 to 30 years), getting the lowest rate possible is worth it. And hey, even though rates are high right now, they probably won’t last forever; If you have good credit, you can more easily refinance to a lower rate when they go down.
2. Better credit cards
The best credit cards are aimed at consumers with good or excellent credit scores. If you’ve ever dreamed of earning points or miles for travel or earning 5% or 6% cash back rates on your purchases, know that having good credit makes you an attractive borrower to credit card companies. After my own credit score rose above 800 a year ago, I was excited to apply for and get approved for a great shopping rewards card—earning a high rate of cash back from one of my biggest expenses was a win for my finances.
3. Ability to finance major purchases
You’ll probably need to make a major purchase (i.e. other than home) at some point in your life. Having good credit means you’re more likely to be approved for personal and car loans. You’ll also get the lowest interest rates available for these loans (the interest rates that lenders reserve for the most qualified borrowers).
4. No deposit for utilities
When you move to a new place and need to sign up for utilities (like electricity, water, and gas) in your name, you may have to pay some money for a deposit if you have a poor credit history. . This way, the company will get paid if you miss bills. Having good credit can mean avoiding a deposit—and moving is expensive enough that it definitely doesn’t need to take an additional hit to your checking account.
5. It’s an easier time to get hired
Some employers conduct credit report-based background checks on potential employees. If this is part of the process of finding a job for you, you’ll know about it (because the employer will need your permission, thanks to the Fair Credit Reporting Act). If you have a solid history of making payments on time and paying off your debt, this could help you land a job offer.
6. Savings on auto insurance
Finally, your credit also comes into play when you get a car insurance policy. Insurance companies can create a credit-based insurance score that helps them determine the likelihood of claims needing to be paid, according to Allstate. Apparently having better credit is associated with fewer auto insurance claims.
How to get good credit?
The good news is that you can improve your credit yourself; There is no need for questionable “credit repair” services. Try these tips:
- Make all payments on time: This is the easiest way to improve your credit score and has a huge impact; Payment history accounts for 35% of your FICO® Score. Making payments on time shows lenders that you are responsible for the money borrowed.
- Pay off your current debt: If you manage to send more money towards your debts each month, your credit utilization ratio will decrease and your score will increase.
- Apply for new credit carefully: I know, I’ve had my eye on a few more credit cards. But for good credit, it’s best to rarely apply for new accounts; Imagine having six months between loan applications. Each new credit inquiry lowers your credit score.
Since good credit will save you money, it’s worth working on yours if it needs some help. For more tips, take a look at our guide on how to improve your credit score.
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