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Most people understand that having a good credit history is important, but what they might not know is just how much their lives are affected by the quality of their credit scores. The fact is, having good credit offers all kinds of benefits, some of which most people aren’t aware of. Below, we discuss some of the most important benefits.
Read on to learn more, or check out our video Benefits of a Credit Card. Reasons why you should get one!
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One of the most important areas where the quality of your credit affects you is in applying for car insurance. While a company can’t turn you down on the basis of your credit history, you are much more likely to be offered more affordable premiums if your credit is good. Insurance companies believe that people with poor credit file more claims and whether this is true or not, the fact is that if you have bad credit you will end up paying more for your car insurance.
Another area where having good credit is beneficial is if you are searching for an apartment to rent or a home to own. Renters and future homeowners with good credit see higher rates of approval for rental and mortgage applications. Moreover, those with good credit who are looking to buy a house receive better interest rates on their mortgages.
The relationship between a tenant and a landlord is similar to the one between a borrower and a lender–both want to know that they’re doing business with a financially responsible candidate. Your landlord wants to know that you will pay your rent on time and your lender wants to know that you will make your monthly installment payments.
For this reason, many landlords and rental companies will do a credit check when you file your application. With good credit, you are not only more likely to be approved to rent an apartment or to buy a home, but, because you’re a top-tier candidate, you’ll have a wider selection of options.
Having good credit can also increase your chances of getting a better interest rate on your mortgage. Because mortgages are typically large loans in the hundreds of thousands of dollars, even a one- or two-percent difference in the rate can result in significant savings over the term of the loan.
Moreover, mortgage applicants with good credit are more attractive to lenders. Because of the extended length of most mortgages, banks want to lend to people who they think will make continued, on-time payments for the duration of the loan term. As a result, they view lower-risk, good credit candidates more favorably, and they will offer these candidates the best deals on their mortgages.
Even getting a job is made easier if you have good credit. When it comes to hiring, companies want to know that they’re bringing on the best people. And part of that determination, in some cases, is made by looking at a candidate’s credit history. While it will require your permission, many employers will want to perform a credit check before sending you an offer letter.
If they find you’ve declared bankruptcy or that you have a history of late payments, it can raise a red flag that you might not be as responsible as you seem and, therefore, not a good fit for the position.
Whether you’re looking for a week-long vacation rental or for a long-term apartment, you’re probably going to need to put a security deposit down.
A security deposit is upfront payment–usually equal to 1-1½ months’ rent–that exists to protect the landlord or rental company from damages to the rental and other unforeseen occupancy-related expenses. The costs of any repairs necessary at the end of an occupancy are deducted from the security deposit, and the difference is returned to the renter.
As a general rule, renters with good credit will be charged smaller security deposits, or even no deposits, while renters with poor credit could pay into thousands of dollars for security deposits.
The benefits of good credit don’t just apply to renting and buying property. Good credit can also mean increased chances of loan approval, higher credit card limits, and increased bargaining power.
Like with renting and getting a job, an excellent credit score increases your chances for approval for credit cards and loans.
If you’re applying for a credit card or a loan, your credit score will be one of the major, if not the most important, factor for the bank to look at when considering whether to approve you or not.
Applicants with bad credit (or no credit) scores will be deemed high-risk borrowers and as a result, will be less likely to get approved for a loan or credit card. Conversely, applicants with great credit scores will be considered low-risk and therefore more favorable, borrowers, which will increase their chances of being approved.
While a good credit score can increase your chances of being approved for a credit card or loan, the benefits don’t stop there. A good credit score can also help you get approved for higher credit limits, larger loans, and perks.
Banks reward borrowers with good credit scores by allowing them access to more funds, again, because the bank feels confident that those borrowers will repay their debts. Moreover, banks will offer better perks–including cash-back programs, lower interest rates, or reward points–to borrowers with good credit.
These benefits are a win-win for the bank and the borrower, too; While the bank will make a profit off of the interest you accrue and payback, you will reap the benefits from the various perks and your credit score will improve from on-time payments.
A better credit score will also lead to better interest rates on your credit cards or other loans. Better interest rates mean less money spent paying off the loan, as well as lower monthly payments. With a lower interest rate, managing your debt becomes that much easier, which leads to a positive cycle—better credit makes your debt easier to manage, which in turn increases your credit even further.
Finally, good credit gives you more negotiating power when setting the terms for loans or financing. To a bank, a person with good credit is a stable asset with a guaranteed return. If you have good credit and are looking for a loan, banks will be more interested in competing for your business. As a result, you can use your value as a low-risk borrower to negotiate for better interest rates, more beneficial repayment plans, higher credit lines, and other benefits.
Working toward an excellent credit score takes a lot of work. You have to be diligent about paying your bills, be realistic about what you can afford; and make sure you stick to your budget. But the benefits for your hard work are more than worth the effort. Getting a loan with no credit is possible — but with a good credit score, you’ll save on rentals, mortgages, interest rate, credit cards, and more. You’ll have access to some of the best deals and rates available, and you should take complete advantage of those benefits–you worked hard to earn them, after all.
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