Lenders use your credit score to determine your creditworthiness or how likely you are to repay a line of credit. Your credit score also has a significant effect on the lines of credit that you are approved for. Having a high credit score can actually save you thousands of dollars on loans, security deposits and credit cards. The best reason to improve your credit score is to save a lot of money - that should be a great source of motivation.
1. Less Expensive Mortgage
You can save tens of thousands of dollars of interest on a mortgage loan with your credit score. A study by LendingTree discovered that the average borrower with very good credit pays $219,660 in interest over the course of a mortgage, while the average borrower with a fair credit score pays $261,076. That’s a difference of over $41,000! So if you think it’s challenging to increase your credit score, think of how hard it is to earn $41,000. Learn some easy tips to raise your credit score.
2. Lower Insurance Premiums
Some people may be surprised to learn that your credit score can impact your auto and homeowner’s insurance policies. Insurance companies use your credit score to determine their own credit-based insurance score. This score is an effective predictor of risk under car and home insurance policies. Basically there are factors in your credit score that are used to predict how likely you are to file an auto or home insurance claim and this impacts the premium that you’ll pay.
3. Better Auto Loan
Your credit score not only affects the amount of interest you’ll pay for an auto loan, but it can also impact the amount you are required to put down and the length of the loan. When you don’t have a good or excellent credit score, lenders can force you to make a larger down payment and they may offer you a shorter length loan to get their money back quicker. If you raise your credit score you’ll get a lower interest rate and more favorable terms on an auto loan, ultimately making the car buying process smoother and saving you money over the course of the loan.
4. Credit Cards With Lower Interest Rates
Having a good credit score will allow you to qualify for credit cards with lower interest rates. This means that you could save thousands of dollars on interest while people with poor credit scores struggle to even get approved for a credit card to begin with. Simply raising your credit score from fair to good can mean you’ll qualify for credit cards with special perks and lower interest rates. All you'll have to do is shop around and find the best credit card that suits your situation. If you're not sure what to look for, then read how to pick the best credit card for you.
5. Decreased Security Deposits
Often people have to put down a security deposit for a housing lease, rental, utility service, cell phone service provider and internet/cable provider. These companies use your credit score to determine if you have to put down a security deposit and how much you will have to pay. This is a more significant amount for a home or apartment lease, but even for service providers you can save up to a couple hundred dollars for each new account with a good credit score.
6. Best Rewards Credit Cards
With a high credit score you’ll qualify for credit cards with the best rewards or cash back. Often these top cards only allow people with good or excellent credit scores to have them, so enjoy those perks! You can earn more cash back or points on purchases which can really add up. Also a lot of these cards have introductory offers with a certain amount of cash back or a specific amount of points depending on the terms.
If you have a good or excellent credit score, now you know what you can be saving money on because of it - and it’s a lot of money! If you are looking for inspiration to improve your credit score, what’s better than saving the money you worked so hard to get? Use the idea of saving thousands of dollars to help you make your payments on time and pay off credit card balances in full each month. Learn about the 5 factors that determine your FICO credit score so you can better understand how you can raise your score.
Financial freedom begins with good habits!
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