5 benefits of a good credit score

Having good credit offers many financial advantages. You may find it easier to secure affordable housing, reliable transportation and even establish new utility services in your name. Bad credit, on the other hand, can make providing basic necessities for yourself and your family a lot more difficult and expensive. 

With the many benefits tied to having a good credit score, knowing the steps you need to bring those numbers up can help your credit score reach a brag-worthy status. 

What is a credit score and what does it mean?

A credit score is a three-digit number — typically between 300 and 850 — that lenders and other service providers refer to when determining how likely a consumer is to pay their bills on time.  

A credit scoring model calculates your credit score by examining the information in your credit reports. If your credit report shows a history of previous late payments, for example, your credit score will reflect that because there’s a greater likelihood you’ll pay late again in the future. But if your credit history is clean of derogatory information, you’re likely to have a higher credit score that indicates you are a lower credit risk. 

Why good credit matters

One of the primary reasons why having good credit should matter to you is because the condition of your credit will matter to future lenders, credit card companies, landlords, utility providers, insurance companies and even some employers. (Note: Employers may only review credit history with your written permission, and never your credit scores.)

Good credit often makes it easier to qualify for financing, leases, lower insurance premiums, and perhaps certain types of jobs or security clearances. Bad credit, by comparison, could lead to higher interest rates or perhaps lost opportunities altogether. 

Benefits of having good credit

In general, a good FICO Score ranges from 670-739 and a very good FICO Score ranges from 740-799. Once you earn a FICO Score of 800-850, your credit score is considered exceptional.

Earning a good credit score can unlock many opportunities. Here are five of the top benefits you may be able to enjoy once you earn good credit: 

1. Better qualification odds

Whether you’re applying for a new credit card, personal loan or another type of financing, having good credit could work to your advantage. Of course, your credit history and credit score aren’t the only factors lenders evaluate. Other details may also impact your eligibility for financing, such as debt-to-income ratio, employment history, income, and more. In general, good credit should improve your chances of approval when you apply for financing. 

2. Lower interest rates 

Lenders, credit card companies and others rely on your credit score and credit reports when setting the interest rates of loans, credit cards and more. In most cases, lenders reserve their lowest interest rates for applicants with the highest credit scores. Getting a lower interest rate on a loan has the potential to save you hundreds and perhaps even thousands of dollars depending on the situation. As such, working to improve your credit score could be well worth the effort. 

3. Higher credit limits and larger loan amounts

Another possible benefit of having a good credit score is the fact that you might be eligible for higher credit limits and larger loan amounts when you borrow money. Lenders and credit card issuers base your borrowing capacity in large part on your debt-to-income ratio (aka the income you earn and how it relates to your existing debts). But your credit score can also play a role in your borrowing capacity. As a result, a good credit score has the potential to help you qualify to borrow more money than you might be able to otherwise. 

4. Lower insurance premiums

In most states (with the exception of California, Hawaii and Massachusetts), auto insurance providers may review credit-based insurance scores when setting auto insurance premiums. A higher credit score tells insurance providers there’s a lower likelihood that you’ll file an insurance claim that could cost the company money. Therefore, having good credit could help you save money on car insurance. 

5. Smaller security deposits 

When you lease an apartment, open a new utility account or establish a new mobile phone service, the landlord or service provider will sometimes ask for a deposit for added security. However, if you have good credit, you may be able to get by with a smaller security deposit requirement and perhaps no upfront costs at all.  

How to achieve good credit

Improving your credit can take time, and the journey might look different depending on where you’re starting. Here are some basic credit tips that could be beneficial to people in a variety of situations.

• Review your credit reports. It’s important to review your three credit reports before you start the credit-building process. You can claim free reports from Equifax, TransUnion and Experian at AnnualCreditReport.com once a week through the end of 2024 (and once every 12 months thereafter). 
• Dispute credit errors. If you discover legitimate mistakes on your credit reports, such as accounts that don’t belong to you, the Fair Credit Reporting Act (FCRA) allows you to dispute them with the credit reporting agencies. This free guide from the Consumer Financial Protection Bureau provides instructions and templates you can use to navigate the credit dispute process. 
• Consider opening new credit accounts. When you open new credit accounts and manage them in a responsible way (e.g., on-time payments, low balance-to-limit ratios on credit cards), those tradelines have the potential to help you build a positive credit history. Credit builder loans, credit cards designed for people who are new to credit, and secured credit cards could be worth considering if you’re trying to rebuild your credit score or if you’re new to credit. 
• Authorized user strategy. Asking a family member to add you to an existing credit card as an authorized user might be helpful in your credit-building journey as well, as that account and payment history will appear on your credit reports. If you attempt this strategy, remember that it’s important to become an authorized user on a credit card account with no late payments and a low credit utilization rate. Otherwise, the credit card might hurt your credit score rather than help it when (and if) it shows up on your credit report. 

It’s also important to become familiar with the five factors that affect your FICO Score.

• Payment history counts the most as it comprises 35% of your score, which is why on-time payments are so critical. 
• How much you owe in relation to your credit limits accounts for 30% of your score. That’s why keeping balances low on revolving credit accounts (such as credit cards) is important.
• Length of credit history accounts for 15% of your score, so the sooner you begin your credit journey, the better. 
• New credit, which shows how often you’re applying for new credit (less is better), accounts for 10% of your score. Opening too many new credit accounts in a short period of time may signal that you’re in financial trouble. 
• Credit mix, which shows if you’ve been successful in handling different types of credit, such as loans and credit cards, also accounts for 10% of your score.