You might only think about your credit score before a big purchase, like when you buy a house or apply for a loan. However, good credit can serve as a backstage pass into a world of perks, better products and easier access to the opportunities you want most.
What Is A Good Credit Score Anyway?
A good credit score allows you to have a commanding advantage. You can actually have some bargaining power and shop around.
Your credit score is ultimately a measure of your creditworthiness based on how you’ve managed credit in the past. Those with higher scores pose less of a risk for lenders, creditors, etc.
The most common consumer credit score is FICO, which has a score range between 300 and 850. VantageScore, another popular credit scoring model, works in a similar way and also ranges from 300 to 850. Although each score’s algorithm differs slightly regarding which credit behaviors have the most impact, the score ranges are very similar. Good credit is a 670 or higher FICO score, or a 700 or higher VantageScore.
Benefits of Your Good Credit Score
Take a look at some of the key advantages that achieving a top-notch credit score can unlock. Then, get to work on improving yours. You’ll have access to more home-buying options and loan products.
For anyone who wants to buy property, a poor credit score limits your home loan options. A conventional mortgage typically requires a FICO credit score of at least 620. Federal Housing Administration loans are available to borrowers with scores as low as 500.
An FHA loan requires that you pay a 1.75 percent fee upfront, plus a monthly mortgage insurance premium for at least 11 years. With a higher score, you’re in a better position to apply for a conventional loan. This doesn’t have the FHA fee and only requires private mortgage insurance until you’ve paid off 20 percent of the property value.
Even if you are already a homeowner, maintaining a strong score is beneficial should you ever decide to refinance your mortgage or take out a home equity line of credit. To give you an idea as to what kind of credit score you should aim to maintain, in January 2019, 66 percent of refinance borrowers had FICO scores of more than 700, according to the Ellie Mae Origination Insight Report.
Beyond home loans, you may decide to work with lenders for other situations, whether it’s to finance a car purchase, take out a small business or personal loan, or apply for student loans. For each of these situations, higher credit scores will usually help you get approved for lower interest rates, therefore saving you thousands of dollars over the long haul.
You can qualify for better credit cards with higher limits and rewards.
When you have a good credit history and score, you’re able to open up a much wider marketplace for yourself. As your score improves, you may be offered higher credit limits and better rewards if you apply for additional credit cards.
From airline miles to retail discounts to cash back, not to mention luxury perks like airport lounge access and concierge services, higher scores open up doors to elite card products.
You’ll likely pay less for insurance.
In 2017, those with a fair credit score paid as much as 36 percent more for their home insurance than those with excellent credit. And yes, checking your credit is relevant for insurance products. When you apply for insurance, you are essentially making an application for a financial service. The insurer will provide you with financial support if you file a claim.
Therefore, insurers’ main concerns are: Will you be able to pay the premium on time? Also, what is the likelihood that you will make a financial claim? As such, insurance companies may check your credit history along with an industry-specific credit score. He points out that industry-specific scores are calculated using the information in your credit report, just like your consumer score.
You might skip large deposits for utilities or cellphone plans.
Interested in financing smartphone? The cellular provider is going to look carefully at your credit report and scores first. Your phone options may be limited without good credit.
Similarly, utility companies will also pull your credit score to figure out your security deposit amount. Once again, a great credit score will likely reduce the amount that you’ll have to put down. Or, you might not have to pay those security deposits at all.
You are more likely to get approved to rent an apartment.
According to a 2017 national survey by TransUnion SmartMove, about 90 percent of landlords say they run a credit and criminal background check on prospective tenants. If you’re renting or leasing an apartment, your credit score can affect your lease rate and deposit requirements.
If you live in an area where good apartments are scarce, a high score could help set you apart from other applicants.
How to Mend Bad Credit
First and foremost, you need to know where you stand. Request your free credit report each year, via AnnualCreditReport.com, as well as your credit score. These days, you can most likely access your credit score for free through one of your credit cards, a financial app or your banking institution.
If you’re in a situation where your credit score is not where you want it to be, first review your credit report for any inaccuracies. If you do discover an error, head straight to the credit bureau websites and file a dispute.
As for negative items on your report that are accurate, be proactive. You can contact your creditors to determine if you can make an arrangement to boost your credit score. For instance, you might be able to negotiate a payoff amount to have them remove the negative item from your credit report.
The bottom line? Don’t just pay attention to your credit scores before you make a big financial move – make it a regular habit.
Call Scott A. Kunkel, CPA PC today in North Richland Hills at 817-498-1040 to have a chat about ways to save money on your taxes.
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Source: US News