You already know that a decent credit score can help you get approved for the credit cards, loans, and other financial products you need. The better your credit score, the better your odds of securing approval.
But there are other financial incentives to building a solid credit score – it can actually save you a lot of money. Here’s how a strong credit score puts money back in your pocket.
1. Better Interest Rates
Just about anything that charges an interest rate – including credit cards, car loans, mortgages, personal loans, and more – will be more affordable if you have strong credit. That’s because borrowers with good or excellent credit scores can access lower interest rates across the board, saving them hundreds or even thousands of dollars in interest in the long run.
For example, car loans for buyers with lower credit scores might have higher interest rates than loans for buyers with good credit and may cost thousands of extra dollars over the course of the loan.
2. Lower Down Payments
If you have negative items in your credit report that affect your credit score, you can probably still access credit, but you may have to pay for the privilege. Lenders may overlook doubts about your creditworthiness if you demonstrate commitment with a large down payment on a loan. This is frequently seen with mortgages and auto loans.
If you have great credit, the lender may be willing to accept a smaller down payment because you have, in his or her eyes, proven yourself capable of managing debt, so you might not need to come up with as much money up front.
Note: Remember, a smaller down payment reduces the amount of cash needed up front, but you’ll end up paying interest on a larger principal. So, there’s a give and take when it comes to down payments.
3. Better Rewards
Many credit cards, ranging from beginner cards to premium luxury cards, offer rewards like cash back, airline miles, travel credits, and other perks. Some of these rewards put cash back in your pocket or can be redeemed to help you save on purchases like travel, gift cards, and more.
The best rewards, highest cash back rates, and most luxurious perks are reserved for those with excellent credit.
4. Lower Insurance Premiums
Credit affects how much you’ll pay for insurance, too. Insurance companies use something called a credit-based insurance score to determine a customer’s risk before they extend coverage under a new policy (depending on the type of insurance you’re applying for and the state you live in).
To generate your credit-based insurance score, insurance companies look at several risk factors contained in your credit history to generate a three-digit number that helps them determine your risk level. Depending on your score, the insurers could deny your policy or charge you a higher premium for coverage.
The stronger your credit score, the better your odds are of securing a lower insurance premium.