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When I was a senior in high school, my parents harped on me about having good credit and to always pay my new back-then credit card bills in full each month.
I never fully understood what having good credit meant at the time though. I just knew that the higher the number, the better your score is, and the better people will perceive you. (Yup, that’s really what I thought. Kind of like an SAT score.)
Essentially though, your credit score is a 3-digit number that represents your ability to pay back a loan.
It’s made up of 5 major factors that influence the score:
Payment history (35%), level of debt/credit utilization (30%), the age of credit (15%), mix of credit (10%), and credit inquiries (10%).
Your credit score is a number that you’ll carry all your life and lenders look at this score primarily to determine if you’re responsible enough to use their services. Having a low score means higher chances to get denied.
So what else can a good credit score do for you? Let’s take a look at the following 7 things.
1. You Qualify for the Best Cell Phone Plans
Did you know that only 50% of T-Mobile customers qualify for their best wireless phone plans due to their good credit?
The rest, due to their poor credit, will have to pay a higher deposit or go with a month-by-month pre-paid phone.
Credit score checks from cell phone service providers are common and it makes sense. They want to make sure that you, as a customer, will be able to pay the cell phone bill each month.
That’s why in the fine print for any cell phone ad promo, it’ll say “For qualified customers only.” This really means, “for customers with good credit.”
So if you have good credit, you’ll qualify for the provider’s top promotions without having to jump through any hoops as well as being able to lease that new iPhone you’re eyeing.
2. You Get a Better Chance for Credit Card and Loan Approvals
This is the heart of the credit score. Good credit score = more approvals for new lines of credit.
However, each time you apply for a new line of credit (like a new credit card or home), the issuing financial institution will do a “hard inquiry” for your credit information. If you receive too many “hard inquiries” in a certain amount of time, it drops your score and sends a red flag to lenders.
A “soft inquiry” will not affect your credit score at all.
Choose your new lines of credit applications wisely and space them out so as not to disrupt your score.
3. You Get Access to More Rewarding Credit Cards
You won’t be stuck with a student credit card or a card that doesn’t provide any perks when you’ve built up your score to a good one.
For instance, I currently have the Chase Sapphire Reserve card that allows me access to certain lounges at the airport, $300 travel credit every year, 3x points on worldwide travel/dining, and free Global Entry perks. It’s basically a travel-lover’s dream card.
Other rewarding credit cards can offer cash back up to 5% as well as generous sign-on bonuses to maximize your money.
Don’t get sucked into opening retail store credit cards though, if you don’t plan on using it often. We interviewed Joe, whose credit score plummeted because he opened a Gap card.
Regardless, a good credit score will continue to open up paths to excellent credit cards, so keep it up!
4. You Get Approval for Higher Limits on a Credit Card
When you get a notice that your credit card limit has been raised, think of it as like getting a gold star. This means the credit card issuer is trusting you to have access to more money.
It doesn’t mean you have to spend more of course. Having a higher limit will bring down your credit utilization ratio even more though. Since a large chunk of your credit score is based on your credit utilization, having the higher limit helps because you’re supposed to stay under 30% of your limit.
For instance, if you have a credit card limit of $1,000 and your monthly bill is $300, that’s already 30% of credit utilization that you should not go over.
Having a higher limit will give you the opportunity to stay under that 30% and to maintain that good score.
5. You Get Easier Approval on Renting Apartments
Having a good credit score means not having to worry about getting denied that apartment you want to move into.
Again, landlords want to know you’re capable of paying the monthly rent, so a credit score check is vital to their stamp of approval.
Landlords typically want renters with a credit score of 620 and higher, so the higher your score is, the less resistance you’ll experience.
6. You Get Better Car Insurance Rates
If you drive a car, then paying car insurance is just part of your life.
Car insurance companies will run a credit check on those applying for insurance, to figure out your likelihood of filing claims. Basically determining how risky you are.
The higher your score is, the less accident-prone you are, and because of that, you’ll get better insurance car rates. Yes to lower payments!
How did they come to this conclusion? There have been statistical analysis to prove it.
For instance, in 2003, The University of Texas (PDF) performed an analysis based on 175,647 policies and found that people with lower credit scores tended to be involved in more car accidents and higher claims payout. This is flagged as high risk to auto insurers.
The Federal Trade Commission (FTC) also did their own study of the correlation between credit history and risk. They came to the same conclusion that credit scores are effective in predicting risk, and thus, your car insurance rates fluctuate because of it.
7. You Can Refinance Your Loan(s) At a Lower Interest Rate
If you have any type of loan, like a student loan or a mortgage, you can consider refinancing it.
This means you work with a private lender to take out a new loan that’s the same amount as your old one. When the new lender approves you, they pay off your original loan on your behalf and you begin to repay your new loan on a different interest rate.
Having a good credit score will affect your new interest rate and could save you thousands of dollars from your previous old loan!
You can keep your research simple if you use a tool like Fiona, which is basically a marketplace of consolidation and refinancing options.
It’s free to use and takes only 3 easy steps to sign up.
They’ll search all the top online lenders to get you the best personal loan anywhere between $1,000 and $100,0000. And loan lengths can last 24-48 months depending on the lender.
