10 Ways a Good Credit Score Could Save You Hundreds
Earning a great credit could keep more money in your pocket every month.
Lower interest rates on credit cards
One way a good credit score can save you money every month is on credit card interest. "Good credit can help you get lower rates on credit cards, which can save you money on interest if you carry a balance," explains Louis DeNicola, a personal finance and credit writer. Of course, when it comes to credit cards, your best bet is to pay your entire balance off monthly. Not only will this strategy help you to avoid expensive interest fees, but it will generally help to improve your credit scores and lead to even more savings opportunities. Watch out for these sneaky things that could lower your credit score.
A better car loan
There's no doubt that having a good credit score could equal significant savings on your auto loan—good credit might even save you thousands of dollars over the life of the loan. John Vincent, reporting for U.S. News & World Report, writes that a "Deep Subprime buyer would have to pay more than $8,000 in additional interest over the six-year term of the car loan [in Vincent's example] because of the high-interest financing, and their monthly payments would be $128 higher than the borrower with excellent credit."
Not only can monthly payments and overall interest be higher on your auto loan when you have less-than-stellar credit scores, but you might also be asked to come up with a bigger down payment and have less favorable loan terms as well. Vincent also writes, "It would not be unusual for that Deep Subprime borrower to be required to put more money down and take a shorter loan term as well."
Pay less on your mortgage
Good credit scores can often save you money on your mortgage, both in the form of a lower down payment and lower interest rate; great credit scores may save you even more. For many people, the potential savings in mortgage interest fees is one of the biggest perks which earning good credit has to offer. The savings can be truly significant on a monthly basis and over the lifetime of your loan.
MyFICO.com offers a free Loan Savings Calculator to show you just how much you could save if you were to work toward improving your FICO credit scores. According to the calculator, you might save over $240 per month on a $250,000 mortgage if you were to improve your credit from a poor rating (620-639 FICO Scores) to an excellent rating (760-850 FICO Scores). You'll also want to avoid these 11 shockingly common mistakes people make when buying their first home.
Lower insurance premiums
Would you be surprised to learn that your credit scores can affect your insurance premium on an auto or homeowner's policy? It's true. In many states, insurers use credit-based insurance scores to assess the risk that you will file a claim and your policy may be priced accordingly. "Positive credit activity, such as no late payments, generally helps you get a higher credit-based insurance score and lower your rates," says Lance Cothern, personal finance expert and founder of MoneyManifesto.com. "Negative credit activity, such as a high amount of debt, generally results in a lower credit-based insurance score and higher rates."
Better interest rates on student loans
The potential savings here is significant. Credible.com reports that borrowers could save as much as $19,000 over the course of their loans by refinancing federal student loans to private student loans with lower interest rates. Tom Anderson with CNBC reports that "borrowers with good income and credit can refinance their student loans to lower interest rates." However, there's a catch. Anderson goes on to state, "You will need an excellent credit score to get the best deals with student loan refinancing."
Word of caution: While you can save a bundle of money by converting your federal student loans to private loans, you do lose access to certain benefits available to federal student loan borrowers.
Save money on interest rates in general
In addition to mortgages, auto loans, student loans, and credit cards, great credit scores might help you to save money on other interest rates in general. Justin Pritchard, CFP and founder of ApproachFP.com explains, "A better interest rate helps you save in two ways: First, a lower rate results in a lower monthly payment, making it easier to handle cash flow." Pritchard continues, "But you also pay less in interest every month—and over the life of your loan. Those two factors work together for healthier finances over your lifetime." Find out the 13 things credit card companies know about you.
Better negotiating power
When you know that your credit is in great shape, you don't have to settle for whatever you can get in terms of financing. In fact, great credit may put you in a position where you can negotiate for better rates and terms. "A good credit score puts you at the top of the pile when applying for financing," says Emma Healey, founder of Money Can Buy Me Happiness. "Your high credit score means you're less likely to default on a loan and are a safer bet for banks and creditors." Healy continues, "Don't be afraid to negotiate interest rates and terms. If you have a good credit score, creditors want your business and may just bend over backward to get it. This could mean lower monthly payments saving you a bundle of cash over the term of your loan."
Lower security deposits
Security deposits for housing leases, services, and rentals are often largely based upon your creditworthiness. This means that if you work hard to earn and keep great credit scores, the security deposits you are required to pay in the future might be smaller or might even go away altogether. With better credit you might save money anytime you lease a new place to live, open a new utility account, or want to switch to a new mobile phone or cable/satellite provider. Digital analyst Brandon Schroth tells Self Lender, "Some landlords will charge a higher security deposit to those who have poor credit."
More credit card perks
Don't forget that the savings opportunities you can enjoy with good credit don't always come in the form of lower monthly payments. Such savings opportunities may also exist as rewards and bonuses. "A good credit score implies you could be racking up perks such as cash back on purchases or airline miles when you use a credit card," Josh Alpert, a registered investment advisor at Motor City Retirement Advising, told GoBankingRates. With great credit scores, you could be earning even better perks, such as airfare rewards which might save you hundreds or even thousands of dollars on travel. Discover the 11 best credit cards for every type of purchase.
More financial breathing room
When you have credit problems and are forced to pay more for the things you and your family need (like transportation and housing), it can make it difficult to get ahead. On the other hand, savings you earn through good credit can help to free up room in your budget to save and invest. Lynnette Khalfani-Cox, The Money Coach®, told AARP that "having bad credit can cost you a fortune, namely because it can impact your ability to save and earn money." Credit score not where you want it to be? Start with these 11 proven strategies to get a higher credit score.