10 Reasons Why A Good Credit Score Will Save You Money

Although millions of credit card users are worldwide, many consumers need to pay more attention to their credit scores. FICO reports that the national average score in the US sits at an all-time high of 716. Still, it also marks the first time since the Great Recession that scores did not improve over a year.

Moreover, the average credit card utilization rate as of April 2022 stands at 31%, up from 29.6% just a year ago. The higher utilization rate may be attributed to more people falling into debt.

As the cost of living rises, how can we use our credit score as an asset, and how will it benefit us by maintaining it?

10 reasons why a good credit score can save you more money in the long term

A good credit score reduces the cost of borrowing

A higher credit score means lenders see you as a low-risk borrower, meaning they are more likely to approve your loan application. However, it’s still important to only borrow what you need, even if your credit score qualifies you for a higher loan amount. The less you borrow, the less you’ll have to pay back, and the less time it will stay on your record.

A good credit score means lower interest rates

Similar to getting better borrowing deals, expect lower interest rates as well. This is one of the main benefits of maintaining a good credit score. Credit card companies, lenders, and providers reserve their lowest rates for applicants with the highest scores.

Likewise, applicants with lower credit will typically receive higher rates. You can also roll multiple credit payments into one at a lower interest rate, another money hack that can save you money in the long run.

A good credit score gives you a better chance of buying a home

Renting is very common, especially among newly independent individuals. If you stay on top of your credit score, you’ll have a better chance of passing a credit check, which is necessary to qualify for an apartment.

There is a difference between a hard vs soft credit check, and landlords and property management companies often go for the latter. Hard checks essentially lower your credit score by as much as 10 points, so it’s important to increase your chances of passing before applying for a rental or mortgage.

A good credit score means lower auto insurance rates

A good credit score can also help you save costs on your car insurance. According to insurance companies, credit-based scoring yields the fairest assessment of a car owner’s risk. It lowers premiums for about 50% 0f customers.

Although some states like California, Hawaii, Massachusetts, and Michigan disallow insurance companies from using credit to regulate car insurance rates, this is different for most areas in the US and the rest of the world.

A good credit score might get you hired faster

Some employers use credit checks as part of their background checks. As mentioned, there are two types of credit checks – soft and hard inquiries. Employers use the former to perform a background check on their potential talents. Unlike hard checks, soft checks don’t really hurt your credit score.

A good credit score prevents overspending

Consumers with good credit scores are less likely to overspend, especially since they know how difficult it is to maintain them. Overspending is a big problem for those who often go over their utilization ratio, which is the ratio of your outstanding balance to your credit card limit.

A ‘good’ utilization ratio is considered less than 30%, but if you’ve had a good credit score for many years, one month with a 32% rate won’t severely impact your overall score. Although, it’s good practice to increase your credit limit if you are constantly edging to 30%.

A good credit score lets you avoid security deposits on most utilities

A good credit score will matter significantly when getting your utilities in order. With a good credit score, providers will likely switch on your utilities with minimal requirements, which is less hassle. With poor credit, landlords and property owners resort to asking for a deposit from you or even having a third party legally agree to pay your bills if you fail to do so, similar to finding someone to co-sign a loan. You might also be required to show proof of a steady source of income as an added safety barrier.

A good credit score will give you better credit rewards

A better credit score also allows consumers to unlock a wider variety of credit cards, similar to stocking up on coupons to save money. This includes reward cards, travel cards, balance transfer cards, and other valuable variations.

A good credit score is a good foundation for managing money

A good credit score is essential to learning how to manage your finances in general. Much like practicing a sustainable lifestyle, you should start seeing the act of building a good credit score as a way to better understand and utilize finances responsibly.

Money comes and goes, but there are habits that you will have to ingrain into your system to make the most out of it. One good practice is to utilize your yearly free credit report from any of the three main credit bureaus: Equifax, Experian, and TransUnion.

A good credit score prepares you for the future

The future is unpredictable, so it’s best to always be prepared in terms of your ability to borrow money. Some people have had to suddenly take out loans during sickness, emergencies, or natural disasters – doing so with a bad credit score would prove to be much more challenging than applying with a good score.

Moreover, having a good credit score will also prepare you for the possibility of another recession because it makes you more credible to employers, banks, lenders, and other financial institutions.

In Conclusion

All in all, a good credit score will reduce the cost of borrowing, lower your interest rates, give you a better chance of buying or renting a space, lower insurance rates, increase your chances of getting hired, help you avoid added utility costs, and give you better rewards.

Maintaining a good score also allows you to learn crucial financial skills such as preventing overspending, paying your dues on time, and preparing for the future.

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