Credit scores are one of those topics that I hear a lot about but I never received clear examples on how they affected my purchasing decisions in a good way. An excellent score can save you a significant amount of money over your lifetime, and open up opportunities that you might not get with a poor score.
I’ve learned first-hand (in a good way, thankfully) how a credit score can affect my livelihood. The car loans I’ve been able to access, the rates on mortgage offers, and the credit card perks I’ve received I can thank in part to my credit history. But before I jump into the amazing opportunities that come with having a great score, below are a few facts that give you more information about these numbers and what you can get with a good credit score.
What You Can Get with a Good Credit Score
What is a credit score? A credit score is a numerical representation of an individual’s creditworthiness, which is essentially a measure of how likely they are to repay borrowed money. Credit scores are used by lenders, such as banks and credit card companies, to evaluate the risk of extending credit or lending money to an individual. The score is based on an analysis of the individual’s credit history and various financial behaviors.
What influences this number? The following key components that typically influence a credit sore include:
- Payment History (35%): This is the record of your payments on credit accounts, including credit cards, mortgages, and other loans. On-time payments positively impact your score, while late payments, defaults, and bankruptcies can have a negative effect.
- Credit Utilization (30%): This is the ratio of your current credit card balances to your credit limits. Keeping this ratio low is generally seen as favorable and can positively impact your credit score.
- Length of Credit History (15%): The amount of time your credit accounts have been established influences your credit score. A longer credit history is generally seen as more favorable.
- Types of Credit in Use (10%): This considers the variety of credit accounts you have, such as credit cards, mortgages, and installment loans. Having a mix of credit types can be beneficial.
- New Credit (10%): This includes recently opened credit accounts and recent inquiries into your credit report. Opening multiple new accounts in a short period can be perceived as risky behavior.
What is considered a good or bad credit score? Credit scores are three-digit numbers that range from 300 to 850, with higher scores indicating better creditworthiness. The levels are categorized as follows:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very Good
- 800-850: Excellent
Where can I go to find my score? There are many different ways you can find your score, including online services, your bank or even credit card companies. Here are a few places you can find out your credit score if you don’t know what it is:
- Credit Bureaus:
- Equifax: You can visit the Equifax website and request your credit score.
- Experian: Experian also provides credit reports and scores on its website.
- TransUnion: TransUnion allows you to access your credit score through its website.
- Credit Monitoring Services. Many credit monitoring services, such as Credit Karma, Credit Sesame, or myFICO, provide free access to your credit score. These services often offer additional tools to help you track and manage your credit.
- Banks and Credit Card Issuers. Some banks and credit card issuers provide credit scores to their customers as a part of their online banking services or credit card statements. Check with your financial institution to see if this service is available.
- FICO® Score. FICO is one of the most widely used credit scoring models. You can purchase your FICO score directly from the myFICO website.
- Credit Score Apps. There are several mobile apps that provide access to your credit score. Some of these apps are affiliated with credit bureaus or financial institutions.
- Credit Counseling Agencies. Nonprofit credit counseling agencies may offer free credit counseling services, including access to your credit report and score.
- Employer or Credit Card Statements. Some employers provide credit score information as part of their employee benefits. You can also find your score through credit card statements.
*It’s important to be careful of websites or services that charge excessive fees or ask for sensitive information without proper security measures. You shouldn’t have to pay anything to access your score, and you shouldn’t expect to give any information to obtain this either.
Below are a few benefits to having a great credit score:
Lower interest on loans. A good credit score can lead to lower interest rates when buying a home. This can save you thousands of dollars over the lifetime of a mortgage payment. The same goes for car loans. If you’re in the market to buy a car, the better credit score you have, the better your loan will be when you’re looking to purchase or lease a car.
Access to better credit cards. Excellent credit scores open doors to premium credit card options with enhanced benefits. Credit cards can be an amazing asset, boosting your spending power and access to premium experiences like travel, entertainment and other opportunities. Good scores also benefit your wallet as many rewards programs have amazing cash back offers for those with good credit.
Easier renting experience. Landlords often check scores when looking over applications. When Kurt and I were looking for a rental during the pandemic, the process was much smoother because we were quickly approved for places we were interested in.
Better insurance offers. With a great credits core, you will very likely receive lower insurance premiums, versus higher rates with a poor score. The better your number, the more you’ll save on auto, rental and homeowners insurance.
Job Opportunities. Did you know that some employers may consider credit history as part of the hiring process? This check can affect the likelihood of you securing the job you want.
Higher Limits. Individuals with good scores may receive higher limits on their credit cards.
Entrepreneurial Ventures. If you’re looking to start a business, a good score can be crucial for securing business loans when starting a business