When’s the last time you checked your credit score? This three-digit number helps financial institutions to gauge your credit worthiness, and it’s one of the most important pieces of information that can shape your financial future.
Having a high credit score can get you approval for a bigger home loan; great terms on a new credit card; and in some states, quicker, cheaper access to home utilities. Read on to learn more about why it’s so important to have a good credit score.
Lower Interest Rates on Big Loans
A higher credit score tells lenders that in the past, you’ve been able to pay back borrowed money in a timely manner. This serves as assurance to the lender that future funds borrowed will likewise be repaid in full, which can help you get more favorable terms on loans. This is especially critical when there’s a large amount of money at stake.
Let’s say you’re shopping around for a home loan of $400,000 with a 30-year term. With an average credit score you might get a 4% interest rate, whereas a good credit score could qualify you for a 3.5% interest rate. While 0.5% doesn’t seem like a big difference – it is. Over 30 years, this would save you more than $40,000.
Better Terms on Car Insurance
When auto insurance companies calculate your coverage needs and monthly payment, they evaluate factors like your driving history, age, income and, of course, your credit score. Research has shown that people with higher credit scores tend to get into fewer accidents, so if you can show your insurance company a better credit rating, you might save on monthly premiums.
More Rewarding Credit Card Options
Today, the best credit cards don’t just let you borrow money – they reward your spending. While card rewards were traditionally linked to travel, since 2020 the earn-and-redeem marketplace has expanded into dining, fashion, groceries, cash-back benefits, and lots more. However, to qualify for the most rewarding cards, you’ll need a good credit score. Having a high score can also help you access other kinds of credit card benefits, such as balance transfer offers that consolidate card debt onto a new balance with a lower monthly interest rate.
Less Hassle With Home Utilities
Utility companies that provide you with gas, water, and electricity may request a letter of guarantee from a friend or relative if you have a low credit score, or even refuse to provide a contract for your home. Alternatively, the company could ask you to pay an up-front deposit as insurance against the possibility that you won’t be able to cover your monthly bills. In the end, it will be less hassle and likely less money if you can show the utility company a strong credit score. State laws could influence how much of an impact your credit can have on your utilities. Check with your specific state or utility provider for details.
3 Steps to Good Credit
If your credit score isn’t where you want it to be, it can be frustrating – and expensive – to miss out on the benefits of good credit. While it’s not always an easy journey to get back to good credit, here are three simple steps you can take to kick-start the process of improving your credit score:
- Know Your Score. Information is power. Most credit cards will automatically show you your credit score, so check yours regularly. You can also get a free copy of your credit report and credit score once a year via a consumer reporting company at annualcreditreport.com.
- Track, Budget, Save: Take control of your finances by tracking every cent that leaves your bank account. Set aside an hour every week to evaluate your spending habits. Are small purchases adding up to big expenses? Where can spending be trimmed? Create a budget to help you establish goals and stick to them.
- Pay Down Debt: With the money you save thanks to tracking and budgeting, you can start to tackle debt. Check out two popular strategies to get you on the road to paying down debt and improving your credit score so you can enjoy all the great benefits that better credit can bring.
HUECU members have free access to accredited credit counsellors. Contact GreenPath Financial Wellness for credit phone counseling. Having a GreenPath counselor review your credit report will not impact your credit score negatively.
Want to know more about how your credit score is calculated? Read more here!