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Financial experts agree: It pays to have a good credit score. There are plenty of reasons a good credit score is beneficial, but the bottom line is the better your score, the more money you can save over time.
How exactly does it work? In most credit scoring models, a score of 700 is considered pretty good. So does it pay to increase that score to, say, 775? Or 800?
The answer depends on the credit product you're applying for. But in many cases, especially with big-ticket items, moving from one good score band to an even better one can save you beaucoup bucks.
A Higher Score Can Make a Big Difference on Your Mortgage
The higher your FICO® Score*, the more money you can save in interest over the life of the loan. For example, say you're planning to borrow $350,000 for your home. According to FICO's Loan Savings Calculator, with a score of 700 in the current interest rate environment (as of March 5, 2019), you could qualify for a 30-year fixed mortgage at 4.30%. Over the lifetime of the loan, you'd pay $273,834 in interest.
However, if you boosted your FICO® Score by just 60 points to 760, that would take you into the next credit scoring band. Then, you'd qualify for a 4.08% interest rate, which means you'd pay $257,515 in interest over the life of the loan. That's a savings of $16,319. Imagine what you could do with those savings if you invested that money instead of paying it to the bank.
You'll Save on Other Loans and Credit Too
For most people, a car loan is the next-biggest debt they'll take on. Now, say you have a 700 VantageScore® (another credit scoring model). That's considered "prime," according to Experian Information Solutions. Based on data from the fourth quarter of 2018, on a five-year, $20,000 auto loan, you'd qualify for a 5.01% interest rate. But if you were "superprime"—with a score of 781 or more—you could qualify for a 4.19% interest rate. That's a savings of $448 on the loan.
A higher credit score can also help you qualify for credit cards with the lowest interest rates and best terms and benefits. For example, if you want to get a balance transfer credit card to help pay down debt, you'd do well to consider the Citi® Double Cash Card - 18 month BT offer. That would allow you to pay down high interest credit card debt at 0% for a year and a half. To qualify for this card, however, you need a credit score of 670 or above to be considered. Even then, there is no guarantee that you will be approved.
Even Car Insurance Companies Consider Credit Scores
While certain states such as California, Hawaii and Massachusetts prevent car insurance companies from taking consumer credit scores into consideration when determining rates, that's not true for the majority of the country. According to Consumer Reports, insurance companies do factor data from credit reports into determining auto insurance rates. In fact, its analysis found that single drivers with "good scores paid $68 to $526 more per year, on average, than similar drivers with the best scores, depending on the state they called home."
How to Boost Your Credit Scores
The good news is that there are plenty of steps you can take to improve your credit scores, even if they're already pretty good.
The best thing you can do is to continue to pay your bills on time. You can also consider applying for new credit to increase the amount of credit available to you, thus reducing your credit utilization ratio.
Want to instantly increase your credit score? Experian Boost™ helps by giving you credit for the utility and mobile phone bills you're already paying. Until now, those payments did not positively impact your score.
This service is completely free and can boost your credit score fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on March 10, 2019, and has been updated.
*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.