7 Benefits to Having a Good Credit Score

In many ways, credit powers today’s economy — and most modern consumers have likely heard the term “good credit” more times than they care to count. But why, exactly, is having a good credit score important to the everyday American? 

The primary reason is because a consumer’s credit score can affect the price he or she pays to borrow money for purchases both large and small — but the reasons certainly don’t end there. Consider these seven benefits that having a good credit score can deliver for you:

  1. Easier approval of credit/loans — When you’re applying for a line of credit, one of the first things lenders look at when deciding whether or not to approve the loan is your credit score. This is the case whether it’s for a low-limit credit card or in-store credit at a department store, or for a much larger, longer-term purchase such as a car or a home. Consumers with good credit scores are much more likely to be approved for all of these loans, and they often spend much less time waiting for a response to their credit application, too.
  1. Reduced interest rates — The interest rates that lenders charge on their loans are in large part a reflection of the risks they face in providing the loans — with higher interest rates serving as a way for them to recoup more money up front when a borrower presents a high risk of loan default. Because consumers with higher credit scores have a strong history of handling credit well and repaying their debts (both in full and in a timely manner), they present lower risks to lenders. And as a result, beyond being approved for loans more frequently, consumers with good credit scores are also typically offered lower interest rates on the money that they borrow.
  1. Significant money savings — Especially on larger, longer-term loans such as mortgages and auto loans, the lower interest rates that consumers with good credit scores can secure can add up to substantial savings — sometimes even reaching six-figure sums of money over the lifetime of the loan. For example, consider the difference that a 1% lower interest rate on a $200,000 mortgage loan can make over the typical 30-year term. The total interest paid over 30 years with a 6% interest rate would equal just over $231,500, while the total interest paid on the same loan amount over 30 years with a 5% interest rate would equal just over $186,500 — representing a difference of over $45,000 over the lifetime of the loan. (And of course, even larger interest rate differences and larger loan amounts would add up to higher savings on interest.)
  2. Additional advantages when borrowing — Other lending-related areas where higher credit scores can be beneficial include the credit limits that credit-card issuers will allow on individual consumers’ credit cards and the loan amounts that lenders will approve for individual borrowers. In each of these areas, consumers with higher credit scores can secure larger loan/credit amounts.
  1. Better insurance rates — Much like lenders look at your credit score before providing you with a loan, insurers do the same before providing you with insurance coverage on your car, home and other belongings. Some of the decisions that a consumer’s credit score can affect include whether an insurer will approve a policy application, how high the premiums will be and whether a policy will be renewed.
    As a result, for consumers seeking insurance coverage, higher credit scores can often result in easier application approval, lower premiums, etc.
  1. Improved housing options — In addition to easier mortgage approvals, consumers can also see the benefits of having higher credit scores when looking to rent a home or an apartment. This is because, in addition to reviewing housing history and contacting references, landlords will often check a prospective tenant’s credit history before approving his or her rental application — and of course, applicants with a history of making timely payments, etc. are typically preferred.
  1. Waived security deposits — Another time when a good credit score can deliver clear advantages for a consumer is when setting up utility services such as electricity, gas and water at a residence. Often, consumers with lower credit scores will have to pay a security deposit before having these services turned on, while consumers with better credit scores can have their deposits waived when securing such essential services.

Want to learn more about credit scores, what they mean and how they’re calculated? Read our blog article on the topic to take a deeper dive.

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