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6 benefits of a good credit score

In its simplest form, your credit score is just three numbers on a page. But the reality is that those three numbers are fairly consequential when taking out a loan, accessing credit, accessing favorable interest rates, and more. Better credit means more banks and credit unions will be willing to lend to you—and your borrowing costs will likely be lower.

If you’re wondering what it means to have good credit, how it helps you, and how to boost your credit score, here’s what to know.

There are two major credit scoring models that lenders rely on when evaluating prospective borrowers: FICO Score and VantageScore. Both are similar, though there are slight differences in the factors used to calculate your credit scores and score ranges.

Here's how to check your credit score for free

Under the FICO model, a good credit score falls into the 670-739 range. Very good scores are in the 740-799 range, while exceptional scores are 800 or higher. The scoring brackets are slightly different under the VantageScore model, with prime (good) credit falling into the 661-780 range and superprime (excellent) credit in the 781-850 range.

One of the biggest perks of having good credit is more accessible financing. If you need to take out a loan or a credit line, more banks and credit unions might be willing to work with you. Poor credit can limit your financing options, leaving you with few choices if you need to borrow. Those choices may be expensive, as many lenders who offer financing to borrowers with poor credit charge costly fees and high rates.

Not only will more lenders be willing to let you borrow with good credit, but your rates are also likely to be lower. Even a marginally lower rate can result in big savings on interest costs.

For example, let’s say two borrowers are shopping for a $10,000 personal loan to pay for an unexpected home project. Borrower A has a 800 credit score and the lender offers a 9.5% rate and a 5-year term. Borrower B has a 660 credit score and the lender offers a 12% rate and a 5-year term. Borrower A’s monthly payments would be around $210, and they’d pay $2,601 in interest over their loan term. But borrower B would have monthly payments of $222 and pay $3,347 in interest over their loan term.

The best rewards credit cards often require excellent credit to qualify. These cards give you access to generous points, miles, or cash back for your credit card spending, as well as other perks like statement credits, access to exclusive events, and complimentary airport lounge visits. Whether you’re a frequent traveler or simply want to benefit from cash back on your regular spending, better credit can help you qualify for better credit cards.

Depending on your state, certain insurance companies will also look at credit history to help determine your insurance credit score. For instance, if you’re shopping for car insurance, your insurance credit score takes several factors into account, including your credit, age, gender, driving history, and more. You could get lower insurance rates with excellent credit, depending on your unique situation and record on the road.

Some utility providers review your credit history before you sign up for services. If you have poor credit or a thin credit file, they may view you as a higher risk customer and require you to make a security deposit as part of your service agreement.

Better credit could also open up more doors if you’re shopping for a new apartment. Property managers and landlords typically check your credit when you submit your rental application. It’s possible they could require a larger security deposit if your credit is poor, or they could deny your application entirely.

Good credit has many benefits, but improving your credit takes time and patience. Here are some tips for improving your credit.

One of the biggest influences on your credit scores, both FICO and VantageScores, is your payment history. Missed and late payments can significantly harm your credit score, so addressing a spotty payment history should be your first priority to improve your credit. Consider setting up autopay for your credit cards and other bills to help keep your payment history consistent.

The age of your credit and how much credit you’re using relative to your total available credit also significantly impact your scores. While you have little control over how long you’ve had credit, you can create a plan to reduce your credit card debt.

For instance, you could work on paying down your highest-interest debts first, or you might work on repaying your smallest balances first. The former could help you save on interest costs over the long term, while the latter could help you achieve some quick wins to stay motivated with debt repayment.

As you pay off your credit cards, ensure you keep your oldest accounts open. Leaving them open will help you maintain a longer credit history, which impacts your scores.

The types of credit you have, or your credit mix, also impact your credit scores. For instance, someone who only has credit card debt may have a lower score than someone who has credit card debt and an auto loan. Of course, it also depends on your payment history and your overall debt levels. But generally, having a healthy mix of different types of credit can help your credit scores. Just ensure you avoid opening too many new accounts simultaneously, as this could have a detrimental effect.

This article was edited by Rebecca McCracken

Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.

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