Borrowers who treat their credit responsibly are usually rewarded with a good credit score. This helps them save money with lower interest rates and the best deals on credit cards, mortgages and other types of financing. By only borrowing what you can afford to pay back, and making your payments in full and on time, you may earn good credit scores -- scores which indicate to lenders that you are a low-risk borrower and unlikely to default on your loans. This "low-risk" label means you may even get to enjoy a few perks.
What Is a Good Credit Score?
Credit scores generally fall into bands or ranges, and they can vary. FICO credit scores range from 300 to 850 and a score above 700 is considered "good," according to Experian, one of the three main credit reporting agencies in the U.S.
Other credit bureaus use slightly different ranges of credit scores and even assign them letter grades. For example, Transunion uses the VantageScore, and scores falling between 901 and 990 get an "A" rating, while those in the range of 801 to 900 get "B" ratings. Like Experian, Equifax, the third major credit bureau, uses FICO scores, and an "excellent" ranges between 760 and 850.
Good Credit Score = Great Mortgage Rates
Want to lower the rate you're offered on a new mortgage? Work at increasing your credit score to above 700 and you just may find that your lender approves your home loan application at an interest rate lower than you were expecting. For example, Fannie Mae's Loan Level Pricing Adjustment matrix adds a 1.75 percent surcharge to 80 percent mortgages for applicants with credit scores between 680 and 699. That drops to 1.00 percent for those at 700, .50 percent at 720, and .250 for those at 740 or higher. For a $300,000 mortgage, the applicant with a 740 FICO pays $4,500 less for a Fannie Mae home loan than one with a 699 score.
Credit Cards for Good Credit
Credit card companies love borrowers with good credit scores. In addition to lower interest rates on the purchases, credit card companies may even offer additional perks. Rewards, cashback, and cash advances are just a few of the benefits that may be available to credit card customers with a good credit score.
In addition, zero percent annual percentage rates (APRs) are another perk for borrowers with good credit scores as lenders try to entice responsible borrowers to transfer balances from higher interest competitor cards as well replace those competitor cards in their wallets with the zero percent cards to make future purchases. If you do sign up for one of these cards, be sure to read the fine print as there may be a limited time offer involved. The last thing you want is to be carrying a large credit card balance when the offer expires and your rate jumps up from zero.
Get the Best Deals
One often overlooked benefit to having a good score doesn't even have to do with borrowing. Your home or vehicle insurance rates can be lower, because insurance companies often believe that people with better credit scores make fewer claims.
How do you know if you have a good score? You need to check it. Get your free credit score today, and if it isn't where you want it to be, start working to improve it so you too can get the best deals and perks on all of your borrowing.