5 Reasons Why Your Credit Score Is Important
Do you have good credit? What defines good credit isn’t always an easy answer. But here’s a truth as clear as day: Having a good credit score will open doors for you in many facets of life – doors that will remain closed to others with substandard credit.
The first thing to know is how to build good credit. Once you’ve improved your score, you’ll have an advantage in several areas, including buying a home or condo, renting an apartment, qualifying for a loan or credit card, getting hired for a job, and lowering your insurance premiums.
The following is not an all-inclusive list, but here are five reasons why having a good credit score is important, along with tips on how to build and maintain a favorable score. You can monitor your credit score at any time with Axos Bank.
1. Buying a Home or Condo
Many cities across the United States have a shortage of available housing. That drives prices up even higher for the properties that are on the market. How do you get an edge? If you’re looking to buy a home or condo, having a strong credit score in place will help your cause tremendously.
“The first step is a preapproval with your bank or lender, and your credit score will be a big factor in your interest rate and the amount you can borrow,” said Kristine Kappel , a Realtor with Kappel Realty Group in San Diego. “I encourage buyers to work with a lender months before they start the home-buying process because we may find errors in a person’s credit history that we can often correct.”
2. Renting an Apartment
If you’re not in the market to buy – or you find renting more attractive – a good credit score will put you in a better position to get the apartment you want. In the most popular places to live in the U.S., the competition for units is intense, sometimes resulting in rental bidding wars.
When a landlord or property management company receives 50 applications for a single unit, they’re going to be highly selective about which applicant gets the opportunity to live in that apartment. Factors they will consider for each applicant include monthly income, job, and credit score.
A FICO Score between 670 and 739 is considered good. The FICO scale goes up to 850, and the higher your score, the more attractive you are as an applicant. Here’s a quick rundown of score ranges:
- Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Exceptional: 800-850
In addition to FICO scores, you’ll also want to check your VantageScore. Here are the score ranges according to VantageScore:
- Poor: 300-499
- Fair: 500-600
- Good: 601-660
- Very Good: 661-780
- Exceptional: 781-850
3. Qualifying for a Loan or Credit Card
Several instances can arise where you need to take out a loan. It could be a mortgage, auto loan, or personal loan. Lenders are going to look at your credit score and credit history to determine the amount of financing they will approve, as well as interest rates.
Let’s say you want to buy a car. We’ve talked about FICO Score. To qualify for the best rates on auto loans, you’ll likely need a credit score of 720 or higher.
Credit cards provide an avenue to build your credit score. But in a true chicken-and-egg scenario, you’ll also need good credit to qualify for better credit cards with lower interest rates. With a higher credit score, you’ll have access to credit cards that provide rewards, like cash back or points.
For those with limited or no credit history, getting a credit card is not impossible, although it may require collateral. A secured credit card allows you a small line of credit in return for a security deposit.
4. Getting Favorable Insurance Premiums
Insurance companies want to know how much it’s going to cost them to insure you. They look at several factors when making that determination. In most states, your credit history is one of the things they will review.
You have an insurance score , which is derived from your credit report. With car insurance, insurers use credit information because it’s predictive of future accidents or insurance claims, and that data helps them determine a rate for each individual customer.
5. Gaining Employment
This category may seem out of step with the others, but it’s true: Employers can look at your credit as a determining factor in making hiring decisions. The caveat is that they can’t see your actual credit score, just your credit report.
A credit report provides a more general overview, including your balances, payment history, and available credit. When employers check your credit report, it’s generally done as part of the background check process before hiring. It can be viewed as a measure of how a candidate handles responsibilities.
The Road to Better Credit
Using credit cards – at least occasionally – and making timely payments will boost your credit score and build your credit history. But don’t apply for too many credit cards . Every time you apply, a hard inquiry shows up on your file, which temporarily lowers your credit score. Do your homework ahead of time so you know what you want.
Ways to improve your insurance score and credit score:
- Make loan and mortgage payments on time.
- Establish or build your credit history.
- Avoid applying for credit too many times in a short period.
Now that you know some of the most important reasons to have good credit, one way to improve your financial health is to monitor your credit score and link accounts with Personal Finance Manager from Axos Bank. This can help you take control of your finances and begin to raise your credit score.
5 Reasons Why Your Credit Score Is Important
This blog was published by Axos Bank on November 8, 2023 and last updated on November 8, 2023.