Credit matters when looking to buy a house, car, or
any other pricey asset. Unless a consumer is flush with cash, the path to home
and vehicle ownership may go through a mortgage or a loan. Good credit can
provide you with terms and privileges not available to a person with poor
credit, including lower interest rates and increased borrowing capacity.
We delve into what constitutes a good credit score
and the reasons why it is important to have a good credit score.
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What’s Considered Good Credit?
Consumers with standard credit scores of 661 or
greater are considered to have good credit, because they rank as prime or super
prime in terms of their risk assessment. A bad credit score falls
on the lower end of the range and a good credit score falls on the higher end
of the range.
Many credit scoring models, including the
standard FICO Scores and
Vantage Score 4.0, measure an individual’s credit risk on a three-digit scale
ranging from 300 to 850. The highest risk group are consumers with deep
subprime credit scores from 300 to 500, and the lowest risk group are consumers
with super prime credit scores from 781 to 850, according to Experian’s State of the Automotive Finance Market report for the
second quarter of 2021.
Consumers may build and attain good credit by
paying their bills on time, maintaining a mix of accounts, and keeping their
revolving balances under 30% of credit limits.
8 Benefits of Good Credit
Here are the eight core benefits of good credit,
which highlight why it is important to have a good credit score:
Benefit #1: Easier Access to Credit
Good credit may provide you with easier access to
additional credit. When a consumer applies for a credit card or personal loan,
lenders may analyze the consumer’s credit report and credit score to make an
informed decision on whether to approve or deny the application. A person with
good credit is considered low-risk and therefore has an easier time getting approved
for a personal loan compared to high-risk borrowers.
Benefit #2: Lower Interest Rates
Consumers with good credit may qualify for lower
interest rates when borrowing money. For example, available financing data for
new vehicle purchases in the second quarter of 2021 show consumers in the deep
subprime category of bad credit have obtained auto loans with 14.59% interest
on average. Meanwhile, consumers in the super prime category of excellent
credit secured 2.34% interest rates on average, according to Experian’s
quarterly report. That amounts to an over 12 percentage point difference in
Benefit #3: Lower Car Insurance Premiums
Many auto insurance companies use credit-based
insurance scores to help categorize consumers by risk and determine what
premiums they may pay. Under this practice, higher-risk consumers may pay
higher auto insurance premiums than lower-risk consumers. In some states,
having good credit or improving your credit score may lead to lower auto insurance
premiums over time.
Benefit #4: Increased Borrowing Capacity
Consumers with good credit may obtain larger credit
limits than those with poor credit. This could translate to greater spending
power on a credit card and the ability to make larger purchases on credit.
Having good credit also puts you in a better position to apply for and obtain
A bolstered borrowing capacity is not limited to
credit cards either — credit unions and banks may offer personal loans to
consumers with good credit. Such loans can help you consolidate debt, finance
large purchases, or obtain fast cash to weather an unforeseen emergency.
Personal loans also may command lower interest rates than credit cards.
Benefit #5: Easier to Buy a Home or Car
Good credit can help you buy a house with a good mortgage
rate or a car with low financing. Borrowing money to own a home
or vehicle may come at a price that includes principal and interest. Consumers
with good credit may qualify for 0% annual percentage rate loans for a car,
where no APR means no interest or finance charges. Establishing good credit may
also improve your likelihood of obtaining a low-APR mortgage, which translates
to lower debt repayment obligations.
Automotive consumers had an average credit score of
732 for new vehicle purchases and 665 for used vehicle purchases in the second
quarter of 2021, according to Experian’s quarterly report for that period of
April through June. This shows the average automotive consumer boasted good
credit within the prime category of low risk.
Benefit #6: More Apartment Lease Options
Signing a lease to an apartment may require good
credit. Landlords who conduct credit checks might deny lease applications if a
prospective tenant has bad credit. Or those with poor credit may have to
provide a higher security deposit for rental housing compared with a
prospective tenant who boasts good credit. Tenants with good credit also may
have more leverage to negotiate for
Benefit #7: Helps Satisfy Employment Background
Jobseekers can benefit from good credit, as some
employers may consider a person’s credit score when making hiring decisions.
A U.S. Department of Housing and Urban Development report released
in October 2019 says that a low credit score or credit invisibility is a burden
that “can thusly limit housing choice and employment opportunity,” whereas “a
good credit score is part of the pathway to self-sufficiency and economic
opportunity.” The term “credit invisible” refers to consumers who lack a credit
score or credit history.
Benefit #8: Ability to Obtain Security Clearances
Law enforcement officers with good credit could gain
privileged access to classified national security information and FBI
facilities. Any state or local law enforcement officer seeking a security
clearance has to first satisfy a comprehensive background check that includes a
review of credit history. The FBI shares secret or top-secret information with
local law enforcement officers who have obtained security clearances.
Poor credit history would not necessarily
disqualify an officer from obtaining a security clearance, but significant
credit history issues “may prevent a clearance from being approved,” according
to information posted on the FBI’s website.
Good credit is important for anyone who wishes to
borrow money to help finance key purchases. Many consumers rely upon mortgages
and loans to buy houses and cars, while many cash-strapped individuals turn to
credit cards to buy essential goods and services ranging from food and
electricity to water and rent for housing. The eight benefits of good
credit highlighted above showcase why it is critical to pay your bills on time
and practice good budgeting.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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