6 Ways Great Credit Scores Can Make Life Easier

Knowing your credit score — and the benefits of improving it — can lead to wiser financial decisions.

Lenders have their own acceptable level of risk for their credit products, so there isn’t a specific credit score that all lenders use to determine what interest rate a customer should receive. That being said, there are certain advantages to having a high credit score.

The most widely used credit scores are FICO Scores, which are created by the Fair Isaac Corp. Most lenders use these credit scores, which have a 300-850 range.

While each lender has its own policy on the credit terms it will offer to people with different credit scores, among other factors it considers, in general a credit score of 781 and above equates to excellent credit for the lowest interest rates on loans or revolving credit lines.

A score of 661 to 780 is generally considered very good and shouldn’t lead to any problems with getting credit.

Here are six ways that excellent credit scores can make life a lot easier:

Better loan rates

This is the most obvious benefit of having excellent credit. Lower rates can add up to significant savings over the life of a loan or credit card, especially with large balances.

In a scenario offered by FICO, a 30-year fixed mortgage of $150,000 would cost $459 less each month by improving a FICO score from 550 to 720, based on national interest rates in September 2007. That equates to a $165,000 savings over the life of the loan.

A good credit score could allow you to negotiate a lower interest rate on your credit card. Just advise the customer service representative that you have a good score and are receiving many offers with lower rates from other banks.

Easier approval

Having excellent credit can make the loan approval process much easier and without delay.

Again, while each lender sets its own approval criteria for financing, credit scores are at the center of this process and an excellent credit score can only make approval easier.

Higher limits

The better credit score you have, the more you can borrow for loans for a home, car, credit card or any type of financing.

Your income will often play a more important role in determining to extend you credit. So if your income doesn’t increase substantially, don’t expect to automatically have credit limits increased based on just your good credit score. Still, a higher score will give a lender more peace of mind that they’ll get paid.

Better credit card perks

Great credit scores can lead to better offers from credit card companies. Not only will they likely offer you better interest rates but will often have better cash back offers, reward programs and balance transfer options.

No security deposits

Phone carriers and utility companies often check credit scores of new customers to determine if a deposit will be needed to open a new account. Someone with a low credit score will probably need to pay a security deposit because they’ll be considered a higher risk, while a high credit score owner may not need to.

Apartment renters with bad credit scores may have to pay a higher security deposit or have a co-signer on the lease.

Lower insurance

Auto and homeowner’s insurance rates can be tied to credit scores in some states and having a high score can lead to a lower insurance premium.