You probably know a good credit score is important, and you might know your credit score affects how likely you are to be approved for a loan or credit card, but that's not all it does.
In the end, it all comes down to patience and diligence. Your credit score is meant to provide a long-term view of how you've managed your money, and only consistently good habits can get you an excellent score.
A good or excellent credit score – typically a score of 670 or above – can net you a number of other benefits that those with fair or poor credit don't have access to. Here are five of them.
1. Low interest rates on credit cards and loans
Your credit score doesn't just determine how likely you are to be approved for a credit card or loan. It also determines the interest rate you get when you are approved. Applicants with excellent credit will receive the lowest interest rates while those with fair or poor credit will have a higher interest rate, to reflect the increased risk in lending money to them.
A lower interest rate could add up to thousands of dollars saved, depending on how much you borrow and how long the loan term is. Consider a $10,000 personal loan with a five-year repayment term. The loan might have a 10% APR if you have excellent credit, in which case, you'll end up paying about $12,750 overall. If you have only fair credit, the same loan could carry a 20% APR,then it would cost you $15,900.
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2. Premium credit cards
Premium credit cards are typically travel rewards credit cards that carry high annual fees, but they also offer lucrative rewards, including annual travel credits, lounge accessand high credit limits. Card issuers have more stringent qualification requirements for these cards because they don't want people signing up for the card, taking advantage of the nice travel rewards, then not paying their bill.
Though credit card issuers almost never list the minimum credit score required to be approved for a card, it's a safe bet you'll need good or excellent credit to be approved for one of these cards.
3. An easier time securing an apartment
Though you don't need a loan to secure an apartment, many landlords still run a credit check before accepting potential renters, and if you have a poor credit history, they may refuse to work with youor require a higher security depositor a cosigner. If you keep your credit score high, landlords will feel more confident in your ability to pay the rent every month, and you'll be more likely to get the apartment of your choice.
4. Lower insurance premiums
Your credit score is essentially a measure of risk, and do you know who loves to assess risk? Insurance companies. Some auto insurers take a peek at your credit score when calculating your premiums, stating that credit score is an indicator of how likely a person is to file an auto insurance claim. Though insurers aren't allowed to turn you away because of a bad credit score, they can charge you more money. Keeping your credit score high will help you avoid this penalty.
5. Better cellphone deals
Yes, even your cellphone provider looks at your credit score to see if you qualify for its promotional deals. Those with poor credit may not make the grade and may have to make a larger down payment when purchasing a new phone. Like lenders, cellphone providers want to make sure you aren't just going to run up a bill, then fail to pay. If they weren't so discriminating, they wouldn't stay in business for very long.
How to improve your credit score
So a high credit score can help you save money and make it easier to secure credit and services you use often, but how do you get a high credit score? The first step is to pull your credit reports and see where you're at. Everyone is entitled to one free credit report per bureau per year through AnnualCreditReport.com. Check these over and make sure everything appears accurate. Notify the credit bureaus and any associated financial institutions if you see anything that looks like a mistake or could be fraudulent activity.
Next, work on practicing good financial habits. Your payment history is the most important factor in your credit score, so always pay your bills on time and set reminders if you need help remembering. You should minimize how much you charge to your credit cards, as this impacts your credit utilization ratio. This ratio looks at how much credit you use versus how much you have access to, and a ratio above 30% could indicate a heavy reliance on credit and someone living beyond their means.
Don't apply for new credit too often or for services where the provider will run a credit check, such as the ones mentioned above. The lender or service provider could do a hard credit check on your report, which will drop your credit score by a few points. Credit scoring models account for normal credit shopping behavior, so if youapplyfor a new loan or line of credit, try to submit all of your applications within 30 days of each other. That way they'll be counted as a single hard credit check.
If you can't get any type of credit at all, try opening a secured credit card or get someone to allow you to be an authorized user on their credit card. You could ask your landlord, if you have one, to report your monthly payments to the credit bureaus to help your score.
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