How Good Credit Saves You Money
- Financial Education
- Frontwave Credit Union
Below, our experts break down what a good credit score is and how building and maintaining good credit can help you save big in the long run.
What exactly is a “good” credit score?If you want a good credit score, you first need to understand how credit scores are calculated.
When it comes to calculating your credit score, there are a few different scoring models. Most lenders use either the FICO score or the VantageScore. These scores range from 300 on the low end to 850 on the high end. While both models share a goal of predicting your credit worthiness, they work a bit differently, which means your credit score could vary too.
A good FICO score is typically considered anything above 670 and is calculated using five key factors:
2. Amount Owed – 30%
3. Length of Credit History: 15%
4. New Credit – 10%
5. Credit Mix – 10%
A good VantageScore is typically 700 or more and it’s calculated a little differently than the FICO score. The main factors that determine your VantageScore are:
1. Payment History - 40%
2. Length and Type of Credit - 21%
3. Credit Utilization - 20%
4. Credit Balances - 11%
5. Recent Credit Applications - 5%
6. Available Credit - 3%
No matter what scoring model you’re looking at, if you're aiming to boost your credit score into the coveted "good” credit score range, you'll have to up your credit game in relation to the factors listed above.
How Good Credit Saves You MoneyEstablishing and maintaining a solid credit score not only helps you keep more money in your pocket, it also opens doors to more financial opportunities. Having good credit shows lenders, landlords, and employers that you are trustworthy and reliable.
Good credit actually saves you money by allowing you to:
1. Borrow or refinance loans at better interest rates.The biggest advantage of having a solid credit score is the ability to borrow money at better rates and terms. This means you could potentially save thousands of dollars in interest payments over the life of your loan. When you have good credit, you often have access to a more loan options with lower interest rates, flexible repayment terms, and more favorable conditions.
2. Qualify for better credit cards that offer rewards and discounts.Good credit gives you access to top-notch credit cards with exciting rewards and discounts. Imagine earning cashback on your everyday purchases or enjoying exclusive perks, discounts and travel benefits, all thanks to your good credit.
3. Be approved for certain jobs and security clearance levels.Your credit score can also play a role in your career prospects. Certain jobs and security clearance levels require you to demonstrate responsible financial behavior. By maintaining a good credit score, you increase your chances of securing these positions, which can be a game-changer for your career (and your salary!).
4. Negotiate better terms on rental properties.With a good credit score, landlords will see you as a responsible tenant who will probably pay rent on time. This can give you the upper hand in negotiating lease terms and potentially securing a lower rental rate and security deposit.
5. Get cheaper insurance.Insurance companies take your credit score into account, and good credit can lead to lower insurance premiums for your car, home, and renters’ insurance. Lower premiums mean more money for you to put towards other financial goals or building your emergency fund.
The good news is, credit scores are not set in stone. If you need to rebuild bad credit or establish a stronger credit history, there's a lot you can do to improve your score over time. By understanding the importance of having good credit and actively working to improve and maintain it, you can unlock a world of financial possibilities and secure your financial future.