6 Ways Having Good Credit Can Save You Money

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A little three-digit number can have a major impact on your finances. Learn how good credit can make life easier (and cheaper) for you. 

A few vital pieces of information really come in handy in your adult life. These include your Social Security number, your driver’s license number, and your credit score. Financial expert Tori Dunlap calls your credit score “your adulting GPA,” and this assessment is spot on.

Credit scores (everyone has multiple credit scores, because three consumer credit bureaus compile information about your financial history) fall into a range between 300 and 850. Whether you have good credit (or not) depends on where you fall on the scale.

According to research from The Ascent about Americans’ credit scores, the average credit score is 714, which is indeed considered good credit. Here are a few ways that having it (for a FICO® Score, good credit is 670 and up) can save you money and indeed make your life easier.

1. A cheaper mortgage loan

While mortgage loans can hardly be called “cheap” these days (as of this writing, the average rate for a 30-year fixed-rate loan is about 8%, according to Freddie Mac), having good credit will help you get a better rate overall. Since a home is a large purchase (perhaps the biggest you’ll ever make), and mortgage loans are repaid over a long period (often 15 to 30 years), it’s worth it to get the lowest rate you can. And hey, while rates are high right now, they likely won’t be forever — if you’ve got good credit, you can more easily refinance to a lower rate when they fall.

2. Better credit cards

The best credit cards are geared toward consumers with good or excellent credit scores. If you’ve ever dreamed about earning points or miles for travel, or 5% or 6% cash back rates on your purchases, know that having good credit makes you an attractive borrower to credit card companies. After I got my own credit score to over 800 a year ago, I was tickled to apply for and be approved for a stellar grocery rewards card — earning a high rate of cash back on one of my largest expenses has been a win for my finances.

3. The ability to finance big purchases

You’ll likely need to make a large purchase at some point in your life (other than a house, that is). Having good credit means you’re more likely to be approved for personal loans and car loans. Plus, you’ll snag the lowest interest rates available for these loans — the ones lenders reserve for the most well-qualified borrowers.

4. No security deposits for utility services

When you move to a new place and have to sign up for utility services in your name (like electricity, water, and gas), you might have to cough up a chunk of money for a deposit if you’ve got a shaky credit history. This way, the company will get paid if you miss bills. Maintaining good credit could mean avoiding a deposit — and since moving is expensive enough, you definitely don’t need the additional hit to your checking account.

5. An easier time getting hired

Some employers run credit-report-based background checks on prospective employees. If this is part of the process to get a job for you, you’ll know about it (as the employer will have to get your permission, thanks to the Fair Credit Reporting Act). If you’ve got a solid history of on-time payments and paying off debt, it could help you snag a job offer.

6. Savings on auto insurance

Finally, your credit also comes into play when you get an auto insurance policy. According to Allstate, insurance companies can generate a credit-based insurance score that helps them determine the likelihood of needing to pay out claims. Having better credit apparently correlates to making fewer auto insurance claims.

How do you get good credit?

The good news is that you can improve your credit yourself — no shady “credit repair” services are necessary. Try these tips:

Make all payments on time: This is the easiest way to boost your credit score, and it has a huge impact — payment history makes up 35% of your FICO® Score. Making on-time payments shows lenders that you’re responsible with borrowed money.Pay down existing debt: If you can manage to send more money toward your debts every month, it’ll decrease your credit utilization ratio, bumping up your score.Apply for new credit sparingly: I know, I have my eye on a few more credit cards myself. But for good credit, it’s best to apply for new accounts infrequently — think six months between credit applications. Each new credit inquiry dings your credit score.

Since good credit can save you money, it’s worth working on yours if it could use some help. Have a look at our guide for how to increase your credit score for more tips.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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