Unlocking the Benefits of a Good Credit Score

Many of us only think about our credit scores when we need to borrow money through loans, credit cards, or other forms of personal credit. However, a good credit score—generally defined as 700 or greater on the FICO® Score scale—offers many additional benefits. Let’s explore why maintaining a good credit score is essential and how it can positively impact your financial life.

6 Reasons You Want a Good Credit Score

Lenders consider credit scores when deciding who they’ll approve for credit—and in other decisions as well. They aren’t the only ones who use credit scores; your score can affect your finances in several ways. Here are some of the financial benefits of having a good credit score:

1. Significant Savings on Interest

Borrowers with the highest credit scores generally have access to the lowest interest rates available on mortgages and auto loans. A lower rate can translate to substantial savings. For example, according to the Experian mortgage calculator, a 30-year mortgage on a $400,000 house with a 10% down payment and a fixed interest rate of 7.31% will cost a borrower a total of $889,381 in principal and interest over the life of the loan. If that same borrower can get an interest rate of 6.31%—1 percentage point lower—they will pay $803,034 over the life of the loan, a savings of $86,347.

2. Better Terms and Access to Loan Products

Lenders commonly use credit score “cut-offs” as preliminary eligibility screens when deciding what type of loan they will offer you—if they’ll offer any loan at all. Each lender sets its own lending criteria, but generally, you gain access to more favorable loan terms and options as your credit scores increase. For instance, a lender might offer its best interest rates only to borrowers with FICO® Scores of 760 or better.

3. Access to the Best Credit Card Rewards

Credit card issuers use credit score cut-offs in decisions about which cards you qualify for. Offers for the most exclusive rewards cards—those with the most generous mileage, accommodation, points, or cash back rewards—are typically only available to borrowers with high credit scores. While a good score may not guarantee approval, it significantly improves your chances.

4. Insurance Discounts

Car insurance companies in many states use specialized credit-based insurance scores to help decide whom they’ll cover and what premium they’ll charge. These scores are derived from information in your credit reports. Good credit can help you save money on car insurance, as it can qualify you for lower premiums.

5. More Housing Options

Many landlords and property management companies check potential tenants’ credit scores to gauge their level of financial responsibility. A low score could prevent your application from being approved or cause you to be charged a higher security deposit on a rental house or apartment.

6. Security Deposit Waivers on Utilities

Utilities, including internet providers, cable companies, and satellite dish companies, may review your credit reports and scores to assess their risk in taking you on as a customer. If you lack a strong credit history, they may require a significant security deposit before starting service or lending you equipment such as routers, dishes, or cable boxes.

What Is a Good Credit Score?

While there are countless credit scoring models on the market, 90% of top lenders use FICO® Scores, which assign scores in a range of 300 to 850. FICO® Scores are categorized into the following credit scoring bands:

• Exceptional: 800 and above
• Very good: 740 to 799
• Good: 670 to 739
• Fair: 580 to 669
• Poor: 579 and below

Most lenders consider a FICO® Score of 700 or above to be a good credit score.

How to Improve Your Credit Score

To improve your credit, you’ll need to demonstrate that you can manage your credit responsibly. Here are some steps to help you improve your credit health:

Don’t Miss Payments

Your payment history is the most important factor in determining your credit scores. A long history of on-time payments can help you achieve excellent credit scores, and just one payment made 30 days late can do significant harm to your scores. Many credit card issuers and other lenders enable automatic payments for the minimum amount due each month, which can help you avoid missing payments.

Pay Down Revolving Account Balances

High balances on credit cards and other revolving credit accounts elevate your credit utilization rate and can hurt your credit scores. Individuals with the highest credit scores tend to keep their credit utilization ratio in the low single digits.

Catch Up on Past-Due Accounts

If you’re behind on any bills, bringing them current can help your credit scores. A late payment can remain on your credit report for up to seven years, but bringing your past-due accounts current stops additional score-damaging late payments from appearing in your credit history and prevents costly late fees.

Limit New Credit Applications

Each credit application you submit can lead to a hard inquiry that lowers your credit scores. The impact of these inquiries is typically small and short-lived, but too many within a short time can add up and significantly lower your credit scores. Opening multiple new accounts can also decrease the average age of all your accounts, which can hurt your scores.

Build a Diverse Credit Portfolio

Credit scoring systems such as the FICO® Score and VantageScore® tend to react positively to evidence that you can handle multiple loans of different types—a scoring factor known as credit mix. A combination of revolving accounts such as credit cards or personal lines of credit and installment accounts—such as an auto loan, student loan, or mortgage—will tend to promote score improvement.

The Bottom Line

As you work toward achieving the best credit score you can get, it may be helpful to review your FICO® Score for free through Experian to chart your progress. If you stick to good credit habits and keep in mind that it’s normal for scores to fluctuate some on a month-to-month basis, you can take satisfaction in long-term score improvement—and the many benefits it confers.

At O1ne Mortgage, we understand the importance of a good credit score and are here to help you navigate your mortgage needs. Whether you’re looking to buy a new home or refinance your current mortgage, our team of experts is ready to assist you. Call us today at 213-732-3074 to learn more about how we can help you achieve your financial goals.