Unlock new financial doors when you improve your score.
One of the most important numbers to gauging the success of your finances is your credit score. Just three little digits, your credit score serves as a financial resume that informs lenders, businesses, and even employers on the relative health of your financial life and how likely you are to repay them.
A “good” credit score is generally considered to be 700 or above, while an “excellent” score is between 720-850. Not only can a higher score grant access to certain financial perks, but big scores save you big money over time. Here’s a look at the benefits of keeping your credit score high.
Better Chances at Bigger Loans
When purchasing something like a new vehicle or a home, the loan amount that institutions are willing to extend is directly affected by your credit score. The higher the credit score, the more confidence lenders have that the individual will be able to consistently pay their mortgage on time, so as a result they can offer a larger loan.
Lowered Interest Rates
Credit scores also impact interest rates. Generally speaking, the higher the credit score an individual has, the lower the interest rates they can expect when taking out loans of all kinds. Because high-scored individuals are desirable borrowers, lending institutions offer lower interest rates to compete for their business.
The importance of lower interest rates cannot be understated, particularly with respect to larger home or auto loans that span years or even decades. Lowering your interest rate even half a percentage point can mean thousands of dollars saved over the term of your loan.
Here’s an example of two neighbors with different credit scores. “Joe” has a high credit score while “Tom” has a low credit score. Both apply for a car loan for $20,000 at a 60-month term.
| Joe (high credit score) | Tom (low credit score) |
|---|---|
| APR¹ offered: 3.00% | APR¹ offered: 5.50% |
| Monthly payment: $442 | Monthly payment: $465 |
| Total paid over the life of the loan: $21,248 | Total paid over the life of the loan: $22,326 |
¹APR = Annual Percentage Rate; numbers are for illustrative purposes only
More Buying & Negotiating Power
Not only do higher scores work to lower interest rates, they also give you more negotiating power when you’re ready to take out a loan. With a high score, you can rest assured that institutions want to lend you money and will compete for the privilege. This will make them more flexible with terms, fees, and interest rates.
More Than Just Loans
Utility companies, cell phone companies and landlords may look at your credit score. With a high credit score, you may have a lower security deposit, a better services package, or even gain a competitive edge when applying for the apartment you want.
How to Caretake Your Credit Score
Now that you know some of the benefits of a good credit score, here are some behaviors that can negatively impact it and drive it down.
Your credit score can decrease when:
- You miss a payment
- Your credit card balances increase
- You max out a credit card
- You open new credit cards or loans
- You’re using more than 30% of your available credit limit
That’s because your credit score is calculated on factors including:
- Payment history
- Current amounts owed
- Ratio of debt to available credit
- Length of credit history
- Types of credit (e.g. mix of credit cards and loans)
- New credit
How to Check Your Credit Score
The easiest way for Cinfed members to check their credit score is to register for My Credit Score (for free!) in their Digital Banking account.
Your credit score is also an excellent topic to discuss with a Financial Coach. Schedule an appointment with a Coach in a convenient branch here. Your credit score is a powerful tool that can save you money and brighten your financial picture. Make sure you’re managing it effectively!