When you are planning to buy something quite expensive, such as a car or the long-awaited own home, then you most likely will need financial support from lenders, who in turn will study your creditworthiness. The level of risk that you bear for the lender is determined by your borrower rating, which is expressed by a credit score. If you have a low score, then your credit status will be considered poor, bearing great risks for credit companies. It is clear that the better your credit, the more financial opportunities you have, but what credit score should be in order to have good ones?
Then you can find out more about the credit status, credit score and its levels, as well as what each of them can give you.
How a high credit rating helps save money?
Your credit rating affects your daily life, regardless of whether you know about it and whether you are currently using any kind of loan or credit card. It’s not just the lenders who are looking at the status of your credit who are considering giving you credit support.
This is precisely one of the reasons why a credit score should be at a fairly high level, even if you are not going to make large purchases in the near future. Moreover, the state of your credit will be relevant when you need to finance your needs, especially those that require urgent solutions, such as medical expenses or repairing a broken heating system in winter.
- Pay less interest
In cases where you need a loan regardless of the purpose, the good status of your credit can help you save significant amounts of money at the interest rate that you will have to pay a credit company to use the money credit.
This will be especially noticeable when using such large amounts of financing as a mortgage. Each additional percentage of the interest rate for every hundred thousand dollars will add a thousand dollars to the amount that you will have to pay the lender in the form of interest annually.
So, if a credit company due to the insufficient level of your credit rating will offer you a mortgage with an interest rate of 2% more than it would have been with a higher credit rating, then when a house cost of 300 thousand dollars for 20 years of using the mortgage, you will overpay for interest in as much as 120,000 dollars! But this money can be invested at a compound interest and earn several times more during this time.
Your credit score should be approximately no less than 600 points in order to have better offers from creditors. The higher your credit rating, the lower the risks of the company that gives you a loan, so with a good credit you get lower interest rates and other softened conditions.
On the contrary, if your credit is in bad status, then you will not only get worse loan terms, but you may generally be denied a credit, since you are a very risky option for lenders.
A fair or good credit significantly reduces the likelihood of refusing your loan, but the maximum opportunity with the lowest payment for this provides you with an excellent credit status, in which a credit score should be at least about 800 points.
Why do we use the words “approximately ” and “on average”? The fact is that in the USA there are several credit bureaus that collect borrower creditworthiness and calculate credit score. In general, the values at different bureaus do not vary much, but each of them has its own calculation algorithm, so the indicators of the credit status, as well as your credit score, may vary slightly.
- Pay lower premiums
Yes, that’s right – the state of your credit affects the cost of insurance for you. Insurers check your credit score, just like lenders. This can be bad news for you if your credit is in poor condition and vice versa, good news when you have excellent credit status.
Why do insurers need your credit rating, if they do not lend you money? When analyzing their business, insurance companies came to the conclusion that significantly more claims for insurance compensation came from people with a low credit rating. This state of affairs is forcing insurance companies to set higher insurance rates for people with bad credit in order to compensate for their risks.
In the case of insurance, your credit score should be at least at the level of a fair credit, so as not to get the highest insurance rates, everything else being equal. Even if you are the most accurate driver, didn’t have an accident and didn’t receive fines for violating the driving rules, then you most likely will not receive the cheapest insurance rate if you have a low level of creditworthiness.
As you can see, the more difficult your financial situation is, the more difficult other conditions become for you, so it might be worth using the opportunity to pay off your debts more quickly, for example, by taking a personal loan to consolidate your debts. So you get the opportunity to quickly raise your credit score and facilitate the payment of your debts. Such a decision will immediately have a positive impact on all your finances and opportunities, since you will begin to save both on the interest of creditors and on insurance.
What other opportunities does a high credit score open for you?
A high credit rating will allow you not only to save and not to pay more than you could. A high score opens up various opportunities for you, which ultimately significantly improve your business in almost all areas of your daily life.
- Get the better job
More recently, many companies began to check the credit score of their potential employees when considering job candidates. Especially this has been taken as a rule by employers who are looking for employees for more responsible and highly paid positions related to access to valuable assets of the company.
It is believed that people with a high credit score are not only honest and responsible, but also more disciplined and organized, able to effectively manage their money and obligations. Employers prefer responsible workers, so it is not surprising that they want to know what a potential candidate is and how he manages his finances.
As you can see in this case, the credit score should be also as high as possible so that you can get the best options for earning, thanks to getting the better job. This again will entail an improvement in all your financial affairs.
- Choose the accommodation you like best
Bring your credit status to a good, and even better excellent, and you will get a wide selection of housing options, and this applies not only to purchase it in a mortgage, but also one that you can rent. Many landlords now also check the credit status of potential tenants before deciding whether to rent out a particular tenant.
If your creditworthiness is good, then most homeowners will be happy to rent it to you, because they will be sure that you will not have problems with timely payment of the rent. In addition, if the real estate owner takes an insurance deposit when renting an apartment or a house, then the amount of such a deposit will usually differ for the better if you have a good credit.
- Expand financial freedom
The level at which credit score should be, of course you decide for yourself. Perhaps you already have your own house or apartment, you recently bought a new car and are not going to make large and expensive purchases in the coming years. You might think that in this case you should not care about your credit status, but do not forget that there are many different reasons in life why you will need to spend more money than is currently in your wallet.
Sometimes this can be caused by the desire to give a gift to a family member or friend, but in other cases, the need for financial support may arise due to unforeseen difficult circumstances, overcoming of which is vital. Damage to the car or water supply in the house, or may be a sudden illness or injury can be one of those good reasons when you need a loan.
In a similar situation, when money is needed urgently and there is no time to wait, getting a loan denial can be fraught with much higher costs because of the delay in solving the problem. It is better to have a high credit score, even when everything is in order, so as not to risk rejecting credit companies in case you urgently need financial support.
Except cases of emergency, generally a higher credit rating will allow you to feel freer in every sense. Creditors will provide you with larger credit limits, lower interest rates and more favorable terms. The increased credit line on your credit cards will allow you to feel more free in expenses, while not worrying about lowering your credit rating due to the high balance on the credit card.
Which credit score is good enough?
The credit rating is determined by specialized companies that monitor the reliability of borrowers called credit bureaus. Each credit bureau has its own methods for calculating credit points and are slightly different from calculations in other such companies.
However, in general, the credit score of different bureaus does not differ so much, so you should know approximately that about 800 points will be considered an excellent credit status. This knows that if you are the owner of such a credit rating, then almost all creditors will always be happy to deal with you and will be ready to offer you the best conditions and the lowest interest rates.
Further, the credit score should be above 720-740 so that your credit can be called good. In this condition of your credit, lenders will also offer you good interest rates, high credit limits and pleasant loan conditions.
From about 600 to 700 points, your credit is considered fair. You can still count on the approval of your loan applications, but the conditions will not be so attractive, and the lender’s interest will be higher.
If your credit score is lower than 580-620 (depending on the credit bureau), this means that not all lenders will be ready to approve a loan for you. In most cases, you will have to look for credit companies that work with bad credit and rely on the most stringent lending conditions and high annual interest rates.
If your credit score is less than 800, then do not be discouraged, this is generally not so bad, since no more than one fifth of Americans have excellent credit status with a rating of 800 or higher. It is more important not to allow a decrease in the credit score in the level of poor credit status.
Keep your score in check
In order to have good financial prospects and the opportunity to get financial support at any time, you should monitor the status of your credit and constantly work to improve it until you reach the highest credit score.
This will help you to achieve knowledge of credit and personal finances, which will help to avoid mistakes in the treatment of your money and debts. Take care of financial self-education in your free time, for example, by reading our blog.
Also find out about what offers you now have for different lenders by filling out just one loan application using the form on this page.