What we'll cover
What is considered a "good" score
Ways to improve your credit score
How credit affects interest rates
You've probably heard all about the importance of credit scores. If you've ever sought financial advice, improving your credit score was likely one of the top suggestions you came across. Here are the benefits of having a good credit score.
What is a good credit score?
Banks use your credit score as one of the factors to determine how well you manage debt. A score above 670 is generally considered good and indicates to potential lenders that you can be trusted to make steady, on-time payments.
Read more: Keep your expenses on track with Ally Bank's spending buckets.
Low credit scores are often the result of missed or late payments, which indicate you haven't always successfully managed your debt. Another factor that can lower your credit score is consistently using a high ratio of your debt — sometimes referred to as maxing out your credit. Having a lot of credit available (think: high credit limits) may help you build your credit and improve your score if you can maintain a low utilization of your credit limit. But making regular, on-time payments can be the biggest factor in maintaining a good credit score.
Benefits of good credit
Here are some benefits of a good credit score:
1. More likely to qualify for a loan or credit
If you're in need of a loan, having a good credit score could help you qualify. Qualifying for a loan is often an important first step in major purchases like buying a home. A high credit score can help you get approved and qualify for a mortgage from a lender like Ally Home.
2. Lower interest rates
Higher credit scores help you qualify for lower interest rates, which may help you save money in interest over the life of your loans.
3. Larger credit card and loan limits
A high score can help show lenders you're ready to handle more responsibility with higher credit card and loan limits. This means you have more borrowing power, and it may also help you keep your credit card utilization low.
4. Better credit card rewards
Maintaining good credit can help you qualify for credit cards that offer rewards or cash-back programs, which tend to have more stringent qualifications for approval. By continuing to build your credit, you may find better options to choose from in terms of interest rates and rewards, whether you prefer cash back or points for things like travel.
Building and maintaining a good credit score is one of the most important things you can do for your overall financial health.
5. Lower insurance rates
Some insurers use your credit score to predict risk and determine your eligibility as a policyholder, so a good credit score may help you secure a lower premium (the amount you pay on a regular basis).
6. Easier approval for rental properties
Landlords often look at your credit history to predict how consistently you will pay rent. If you have a lower credit score, you may have a harder time locking down a lease. A good credit score positions you as a dependable tenant, giving you a better chance at beating out the competition and renting your ideal space.
7. Qualify for refinancing
Refinancing student loans, auto financing or a mortgage could help you lock in lower interest rates and pay down debt more efficiently. Although lenders each have different requirements when it comes to refinancing, a solid credit history offers an undeniable advantage and will give you greater flexibility to qualify for refinancing opportunities.
Use our refinance calculator to see the difference a new mortgage can make.
Give yourself credit
Building and maintaining a good credit score is one of the most important things you can do for your overall financial health. Even if you're not taking out a mortgage today or buying a car tomorrow, a good credit score will have you ready to crush your financial goals when the time comes.
