Buying power. Perhaps the greatest benefit of excellent credit is buying power. While your FICO score measures creditworthiness, it also measures risk. A score of 740 tells lenders that you are equipped to handle the responsibilities of a new loan. This quality is especially important when it comes to:
Mortgages. As the primary household expense, a credit boost could save you thousands over the life of the loan. For example, suppose you buy a house valued at $250,000. According to MyFICO, a score of 740 means you’ll pay $1,157 per month, while a score of 650 means you’ll pay $1,276 per month. It may not seem like much of a difference, but you’ll pay nearly $43,000 more for a 30-year fixed mortgage. Thanks to higher interest rates attached to poor credit, homes of greater value are also out of reach.
Auto loans. Travelling from point A to B is easier with good credit in tow. A competitive score means businesses will work with you on MSRP price, car extras and even loan terms.
Student loans. Modern debt has a new face thanks to education costs. Attending college is nearly impossible without scholarships, grants or some kind of financing. While most student loan providers don’t require stellar credit to qualify, you’ll need it to secure the best interest rates available. Download our free e-book, Student’s Guide to Credit, to learn more.
Saving power. Savings aren’t a direct factor in credit scoring, but they can affect your creditworthiness and lifestyle in terms of:
Accruing interest. Good credit has the ability to significantly reduce how much you pay over the life of your loans. Put simply, the higher your credit score, the lower your interest rates. As we learned from the mortgage example, a higher credit score means you can afford to shop for a home based on its value rather than being limited by the added interest.
According to a Federal Reserve survey, nearly one-third of working Americans have no savings. What does this mean for their retirement? While most will continue working, those with health issues or other limitations will be forced to live on credit. This unfortunate inevitability will lead to overdue bills, collections, charge offs and bankruptcy.Saving money with better credit allows you to avoid these consequences and approach retirement on solid ground.
As many retirees will learn, it’s important to save for emergencies and unforeseen expenses. Injury, unemployment and rising cost of living are just a few of the reasons to set aside at least 10 percent of your income. Your efforts will help you avoid becoming overwhelmed by bills and mounting credit card debt.
Perks. In addition to buying and saving, the credit elite enjoy perks that are unavailable to their low-scoring counterparts. High-end credit cards offer their customers a variety of incentives to join and spend under their umbrella. For example, the American Express Platinum card only accepts applicants with good-to-excellent scores and provides travel benefits, shopping perks and one-of-a-kind experiences for customers — experiences that only creditworthiness can buy.