A good credit score is one of the most important indicators lenders use to evaluate your financial health. It lets them know that you handle your debt responsibly and that you can manage different types of accounts. Credit scores are based on a range from 350 to 850. Most experts agree that maintaining a score of at least 700 is ideal for obtaining the best rates on various types of loans and can potentially save you tens of thousands of dollars over the years.
Here’s how having a good credit score can help you and aid to a better financial future.
Ability To Get New Credit
Even though lenders consider your credit score, among other factors like income and how much debt you currently have, you are much more likely to get approved for additional credit if your credit score is good. Individuals with higher credit scores are also more likely to get more favorable terms for their loans, such as lower interest rates.
Renting or Buying a Home
There is no set credit score required for renting a living space. But knowing what your score is, and the better it is, can help you find properties that you’ll be able to qualify for and safe your money in the long run. If you have a credit score of 670 or higher, you’re already above the national average, and that is the type of tenant most landlords and property owners are looking for.
Having a good credit score also helps make it easier to obtain a mortgage when you are searching for a new home. Those with credit scores above 740 usually qualify for the best interest rates available, which can lead to significant savings over the term of your mortgage. For instance, on a 30-year fixed-rate loan of $100,000, the difference between paying 3% and 3.5% really adds up, as you’ll pay back $151,777 at 3% and $161,656 at 3.5%.
Utilities and Living Expenses
Utility payments rarely show up on a credit report. But how you manage your utilities can impact your overall score. Your overall payment history makes up to 35% of your score so even though regular payments towards your utility bills won’t necessarily be reported to your credit bureau, non-payment could result in collections that will ultimately impact your credit score. In addition to that, most utilities and other home service providers like cable companies, check your credit score before issuing services to you. A bonus to having great credit is that some utility companies will lower and sometimes even waive deposit fees based on your positive payment history.
Insurance companies won’t necessarily deny coverage to an individual with a lower credit score but having a higher score could help you lower your premiums and can open you up to other company-specific benefits.
Depending on the industry you work in, your employer may perform credit checks on potential new hires as part of your employment background check. Though prospective employers cannot see your credit score in a background check, they do see your open lines of credit, outstanding balances, late or missed payments, and how much credit you have available.
How To Improve Your Credit Score
Everyone can improve their financial health with a little hard work and perseverance. Here are a few steps you can take to improve your credit score before applying for additional credit.
- Pay bills on time. Sign up for automatic payments to ensure that your bills get paid automatically and on time each month. Online banking and automatic bill payments make it easy to never miss a due date. Plus, most services will notify you in advance of due dates or put a reminder in your phone’s calendar app, so there are no unexpected charges. If you have any past-due accounts, prioritize catching up on them.
- Pay down existing debt. For maximum impact on your credit score, pay off unsecured personal loans and credit cards first, as they tend to have higher interest rates. This will help lower your monthly bills and your debt-to-income ratio, making you more attractive to potential lenders.
- Avoid opening new lines of credit. Opening new lines of credit can hurt your overall credit score. However, if you need additional funds, you can request a higher credit limit from your existing credit card company, just make sure to use it responsibly. Lenders will check to see your current credit utilization. As a rule of thumb, it’s best to avoid using more than 30% of your available credit at any given time.
- Monitor your credit reports for fraud. The sooner you identify a mistake, the easier it is to correct it. If you see something wrong or suspicious on your credit report, contact the credit bureau and the entity that provided the incorrect information as soon as possible. The Federal Trade Commission also offers some great tools on how to help if you find yourself a victim of identity theft.
A good credit score boosts your financial health and helps you obtain favorable financing on everything from home to auto and personal loans. To learn more, contact Community First Credit Union today.