Having a Good Credit Score Is Important Because It Saves Money

Editorial Note:

Updated: June 12, 2020

It’s possible to go through life with bad credit. The problem is that it makes life expensive and difficult. If you prefer to be less stressed, then you should have and maintain a good credit score for future use. Having a good credit score is important because it saves money and offers many financial perks that just make life better. Below, we’ve identified six benefits of a good credit score.

Way 1: A Good Credit Score Leads to Low Interest Rates

Your interest rate is the cost to use borrowed money, as a percentage of your loan or credit issued. Lenders decide your interest rate based on your credit history, which determines your credit score. A good credit history tells lenders that you pay your bills on time, and manage your credit well. It reassures them that you’ll very likely repay the credit that was lent, plus finance charges. Since you’re low risk, lenders charge you less money.

According to Bankrate.com, a score within 600-679 has an average annual percentage rate (APR) of 22.9%. Move into the 680-739 range and it drops to 17.99%. Bring that score to 740 or more and your APR goes to 12.99%. Higher scores mean you keep more of your money. On a large loan, like a mortgage, this can be equivalent to tens of thousands of dollars. So if your lender suggests that you accept a high interest rate, use your score to negotiate a lower one. If your lender refuses to budge, feel free to shop around. With your good credit score, you’ll find a number of great credit alternatives.

Way 2: It Increases Your Chances to Get Approved for a Specific Card or Loan

Do you know who gets the best credit cards with the most amazing perks? It’s usually the people who have good credit on top of the steady income and strong debt management skills. Your good credit can grant you no annual fees, 0% APR, and high credit limits. Card issuers may also offer other exclusive high-value benefits. Loan lenders may offer the best terms on your loan, like lower interest rates, large loan amounts, and payment flexibility.

Way 3: You Receive Better Car Insurance Rates

Your bad credit can be used against you even if you’re not trying to get a credit card or a loan. Car insurance companies view bad credit scores as a risk. They believe the people who have poor scores tend to take more risks and file more claims than other people. As a result, car insurance companies will penalize applicants with bad credit by charging them higher premiums. (If you are a resident of California, Hawaii, or Massachusetts you are exempt from this.)

Way 4: You Get Easier Approval For Rental Houses

Another way your bad credit can be used against you is when applying for a place to rent. Many landlords use credit scores when screening potential tenants. A bad score is not an immediate rejection, but it can be if combined with outstanding rent or eviction. If the landlord accepts your application, you will have to pay a higher deposit than a good credit applicant. Having a good credit score saves money. It also saves time and effort looking for a landlord with decent rentals who will overlook awful credit. These options are few and far in-between.

Save Money

Way 5: A Good Credit Score Helps You Get Cheaper Cell Phone Plans

Yet another way bad credit can affect you is with your cell phone service provider. Show up with good credit score and you can qualify for any post-paid service. They may even throw in their best phone packages for free, or with a very generous payment plan. Bad credit score applicants may be directed to either put down a security deposit or purchase a pre-paid plan. They also are unlikely to qualify for free or discounted phones.

Way 6: You Avoid Security Deposits on Utilities

Congratulations, you’ve moved into a new home. Now you need to get your utilities hooked up. As a new customer, they may ask to perform a credit check. If your score is bad, they’ll require you to pay a deposit of up to $200 to initiate the service. New customers with good credit may have the fee waived.

Save Money With a Good Credit Score

Your credit affects many different parts of your finances that aren’t directly connected to credit cards and loans. You could neglect your credit score since it’s possible to live without good credit. It’s just that you run the risk of wasting thousands of dollars annually through deposits, higher rates, and missing discounts. The best reason for why you should have and maintain a good credit score is to save money.

Roman Zelvenschi

I started a digital marketing agency Romanz Media Group Inc. 12 years ago. Running my own business quickly taught me the importance of cash flow. Making sales was not enough, I had to have money in the bank to pay the vendors, staff and personal bills.

During those early stages of the company I learned how to get creative with debt and to save on interest cost. I paid for everything I could with a credit card to both get more points and to extend the payment date by 25 days (credit card grace period). I then utilized a 0% balance transfer offers to rotate this debt.

I learned a lot during this process and made a lot of mistakes. My key lesson is that the most important part of being financially independent is how much I managed to save, rather than how much I earned. Staying disciplined with savings and tracking spending is not easy and I tried many different methods to stay on track.

FinancialFreedom.Guru is a side project where I and my staff are trying to share the practical knowledge on how to understand finances and to build wealth.

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