You probably haven’t heard about the importance of good credit, either from your parents and definitely not in school.
Having good credit can open doors of huge opportunities, unfortunately, a lot of people aren’t taught about good credit or receive misinformation about it.
This can lead to people not having enough credit or worse, having bad credit that limits their options for loans, leasing, purchasing, etc.
You might think there’s no way to achieve good credit when you have bad credit.
While it might take time and a lot of work, you can absolutely get to a point of good credit.
What is the difference between good credit and bad credit?
So what exactly is good credit?
Good credit occurs as part of your credit history. So every time you paid a bill on time - or didn’t pay a bill - that is reflected as part of your credit score.
What is a credit score?
Basically, a credit score is the likelihood that you’ll pay back a loan or pay a bill in a timely fashion.
The higher the credit score, the better chance you have applying for and getting approved for loans, housing, cars, etc.
As of 2021, the average credit score most Americans have is about 698, however this is just based on your VantageScore.
The average credit score for FICO was 710 in 2020. That’s quite a bit of range between the two.
According to one survey, 34.8% of Americans have what is known as subprime credit scores - this means their score is between 580 and 669.
However, 11.1% have FICO scores below 550, while 20% of consumers have been 30 days late on a bill payment.
Both of these things heavily impact your credit, which can limit the amount of money you can get on a loan or even the prospect of getting approved for a loan.
Why Have a Good Credit Score?
As we all know, life happens.
Things come up and we don’t pay a bill on time and that’s understandable, but when done on a consistent basis, this can really hurt your credit score.
If you want to save thousands of dollars, while also being able to get the best interest rates and deals, then having a good credit score will help with that.
Here’s 6 reasons why you want to have the best credit score possible.
6 Reasons to Improve Your Credit Score
1. Low interest rates on mortgages
If you’re looking to buy a house now or in the future, your credit score plays a huge factor into not only the amount you can qualify for, but the interest rate.
Interest rates are important, because the higher your rate, the more money you may be paying on the life of the loan.
FICO actually has a quick estimate on a mortgage between a person who has a 650 credit score and someone with a 670 credit score.
The person with the 650 score actually ends up paying $48 more on a $200,000 fixed mortgage than the person with a score of 670.
The APR differences are 3.136% vs 3.566%, as an example.
Now, $48 may not seem like a lot of money, but when paid over the course of the loan, that’s nearly $17,000.
Every company will have their own APR, but that’s a lot of money over the difference of 20 points.
2. Low interest rates on auto loans
Maybe a house isn’t on your radar, but a new car might be.
The same principle of the mortgage applies to an auto loan, as well as the ability to lease a car. Your initial payment may be much higher or the interest rate will be higher.
As another example, a $30,000 auto loan for 60 months at 3.4% would be about $544 a month for someone with a credit score of 720 or above.
It’s $625 a month for someone with a score of 639 or less and the interest rate is at 9.1%!
Having that 720 credit score would save you $3,000 over 5 years.
3. Better car insurance rates
Speaking of cars, your credit score is also considered when you apply for car insurance.
While insurance is dependent on the state you live in, those with poor credit spend 71% higher on their insurance.
92% of all insurers consider credit when calculating and this includes your payment history, the length of your credit history, and the different types of credit you have.
4. Easier approval for renting homes and apartments
Let me ask you a question - let’s say you were applying for an apartment and you were up against someone with very good credit vs your very bad credit.
Which application do you think the manager will approve?
Having good credit can not only get you approved for the apartment or home you want, but it also means your security deposit won’t be as high.
Or you may even get a deposit waived.
5. Getting approved for the best credit cards
Credit cards have amazing benefits - travel benefits, purchase protection, points, statement credits - that you can get with good credit.
This is especially true with top tier credit cards, like the Chase Sapphire Reserve card or the American Express Platinum card.
The Sapphire Reserve card has fantastic travel benefits, like free pre-check, free access to airport lounges, bonuses, etc.
The same is true for the Amex card.
You miss out on these types of cards and benefits when you have bad credit.
6. Access to business credit cards
If you don’t have a handle on your personal credit, you lose out on accessing business credit.
When you have business credit cards, you can get money borrowed at 0% and use that money to:
Scale current businesses with
Start companies with
The more you can borrow, the more you can make.
Having good credit is more than just your credit score; it can give you a lot of opportunities towards housing and transportation.
But it can also unlock doors for a lot of future investments, especially if you’re considering starting a business or investing.
If you want to see what you can do with good credit or you’re looking to repair your credit, come join my course community.