A good credit score is considered to be anything above 670. Having a good score doesn’t just help you get approved for a loan. It determines whether you can afford to buy a home, own a car, and even rent an apartment.
If you have a low credit score, you should take steps to improve it. From applying for a secured credit card to setting up automatic payments, there are many ways to enhance your score. In this article, we discuss the benefits of good credit and steps to help you achieve it.
Things a Good Credit Score Will Do for You
1. Get You Approved for Credit
A good credit score helps you get approved for loans and credit cards. While your credit score isn’t the only factor looked at, it plays a significant role. If your score is low, lenders and credit issuers won’t feel as comfortable letting you borrow money. A credit builder card will help you strengthen your credit and boost your score, improving your credit approval odds.
Besides credit approval, a good score means you’ll be eligible for larger loans. This is something you might need to qualify for if you’re interested in buying a home. But even smaller loans, such as private student loans, are easier to get with a good score.
A good score also increases your likelihood of getting approved for credit cards with higher limits and better rewards. Many cards with the best rewards, like travel points and cash back, require you to have great credit.
2. Earn You Lower Interest Rates
When making a substantial purchase, such as buying a home or a car, you’ll need to apply for a loan. A loan lets you borrow money so you can achieve those larger financial goals. One of the main benefits of having good credit is getting approved for a loan with lower interest rates.
The interest rate is the amount a lender charges you for borrowing money. It is typically a percentage of the amount loaned. You want a low interest rate to avoid owing more money in the long run. That’s why having good credit is so important.
When you apply for a loan, the lender uses your score to determine your interest rate. The better your score, the lower your interest rate. The worse your score, the higher your interest rate.
3. Better Car Insurance
Believe it or not, your credit score also determines how much you pay for car insurance. Like lenders, insurance companies review your score when deciding on your payment. The higher your credit score, the cheaper your auto insurance premium will be.
You might be asking, “How much could I really have to pay in car insurance?” According to research, drivers with poor credit pay an average of $209 per month for auto insurance. This is about 77% higher than what a driver with a good credit score pays.
Your score also determines how much you pay for home insurance. In the United States, many insurance companies use your credit score to assess your risk. If you have a good score, they’ll consider you a low risk and give you a cheaper premium.
4. Let You Rent an Apartment
Even if you don’t plan on buying a house anytime soon, you still need a good credit score to rent. Not everyone realizes this, but landlords often review your credit score when deciding whether to accept your rental application. If you have a good score, landlords infer that to mean you’re responsible and likely to pay rent on time. However, if your credit is poor, they’ll assume the opposite.
And while a landlord might not reject you for having a low score, they may require a higher deposit. In some cases, you’ll need to have a cosigner.
For perspective, Experian states that a credit score of 620 is often the “starting point” to qualify for an apartment. If your score is lower than that, you might want to work on it before renting at Miami Shores apartments.
How to Improve Your Score
Now that you know why good credit is important, let’s focus on how you can achieve a better credit score.
1. Apply for a Secured Credit Card
If you have poor or nonexistent credit, you should apply for a secured credit card. While these cards work like traditional credit cards, they require a cash deposit. This deposit is typically equivalent to the credit limit and acts as a safeguard for the credit issuer. Keep in mind, though, that a deposit doesn’t mean you can ignore your payments. For your score to improve, you need a positive payment history.
When choosing the right secured credit card, make sure it reports to the major credit bureaus. You also want the card’s features to work for your goals and lifestyle. For example, if you travel overseas, you want a secured credit card with no foreign transaction fees.
You might also want to opt for a credit builder card instead. While similar to a secured card, some credit builder cards require a funds transfer instead of an initial deposit.
2. Don’t Miss Payments
One of the most critical components of your credit score is on-time payment history. The better your history of making payments on time, the better your score. With this in mind, one of your main goals should be to make your payments before the due date.
Create a budget to ensure you’re allocating your money correctly and set up automatic payments to avoid missing due dates. If you still can’t make a payment on time, reach out to your credit issuer. If you explain the circumstances you might be able to set up a payment plan that won’t impact your score.
Staying on top of your payments is one of the best things you can do. Not only will it help you avoid late fees and added interest, but it’ll also improve your credit score.
3. Catch Up on Payments
We mentioned the importance of avoiding late payments. But what about payments you’re already late on? You should make paying those a priority. While late payments stay on your credit report for years, being up-to-date on your bills stops late fees from accumulating.
You also need to check if any accounts have been sent to collections, as this can drastically lower your score. Do your best to pay those off first, and then tackle your other late bills.
If you’re unsure how to pay off debt, consider working with a financial advisor to create a plan. There’s no perfect way to catch up on late payments, but an advisor can determine the best way for you.
While improving your score is something to work toward, it doesn’t happen overnight. Building good credit takes time, so don’t be deterred if you don’t see a change immediately. By using the tips above, you can steadily improve your credit score and achieve financial freedom.