3 Ways Your Credit Can Work for You

Updated: Apr 13


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A good credit score can work for you in many ways—starting with saving you money and helping you reach your financial goals. You may already know a good credit score can help you qualify for loans and credit cards, but it can also lower the cost of borrowing money, increase your housing options, reduce your insurance costs, and more.


These cost savings can add up quickly and free up funds you can use for other purposes, like saving for retirement or a down payment on a house, increasing your emergency savings, or purchasing new furniture. Here are three top ways your credit can work for you—and how you can reach a higher credit score.


1. Save Money on Loans and Credit Cards


Borrowers with good or excellent credit usually save a bundle in interest because they generally qualify for better rates. Just a slight reduction in the interest rate on a large loan like a mortgage, for example, could save you thousands of dollars.


To illustrate, a 30-year fixed-rate mortgage of $325,000 at 5% interest will cost you $303,081 in interest over the life of the loan. If you’re able to improve your credit score and qualify for a rate of 4%, you will pay $233,576 in interest—saving you $69,505!


A high credit score can also qualify you for premium credit cards with top benefits and perks—and get you a lower interest rate. In general, borrowing money will cost you less if you can show you’ve handled credit responsibly in the past—which is exactly what your credit score measures.


2. Get More Housing Options and Lower Utility Deposits


When you apply to rent an apartment or home, the landlord may check your credit to determine whether you’re likely to be a responsible tenant. A higher credit score and positive credit history could help you get approved and qualify you for a lower security deposit.


Utility companies may check your credit when deciding whether to require a deposit or how much to charge when you’re setting up your service at a new property. If you have a good credit score, they may waive the deposit requirement altogether.


3. Reduce Car Insurance Costs


In states where it’s allowed, insurance companies may consider your credit score when deciding how much to charge you in annual premiums. A lower credit score indicates that you may be more likely to file a claim, which could cost the insurer more money. You won’t be denied a policy if your score is low, but you could be charged more for coverage. Insurance companies also look at other factors, such as your driving history, when calculating rates.


Insurance providers in California, Hawaii, Massachusetts, and Michigan are not allowed to use credit to determine rates.


How to Achieve and Maintain Good Credit


These good credit habits will help improve your credit score or maintain your stellar credit rating:


  • Pay all your bills on time. Payment history is the largest component of your credit score, and even one debt payment made 30 or more days late can harm your credit score. In fact, late payments reported to the consumer credit reporting companies (Experian, TransUnion, and Equifax) can stay on your credit report for seven years.

  • Keep your credit card balances low. Aim to keep your credit card balances at or below 30% of their credit limit to avoid hurting your credit score and to show lenders you can manage credit responsibly. If you can get balances down to 10% or lower, your score could improve even more.

  • Apply for credit only when you need it. Each time you apply for new credit, a hard inquiry is generated and could shave a few points off your score. The impact is only short-term if there’s any impact at all, but too many inquiries can make you look risky in the eyes of potential creditors. The exception is if you’re shopping around for the best rate, such as by submitting several car loan applications over the span of a week. In this case, credit scoring models will count your inquiries as one, minimizing the effect on your scores.

  • Monitor your credit regularly. Checking your credit reports and scores helps you understand where your credit stands and spot any inaccuracies right away. You can get a free credit report from each of the three credit reporting companies at AnnualCreditReport.com. You can also use Experian’s free credit monitoring service to keep tabs on your credit report activity: You can view your credit score, get suggestions on activities that can help improve it and receive alerts anytime your report changes.

The Bottom Line


Having good credit can benefit you in many ways and get you closer to your financial goals. Is your credit score low due to a few past financial missteps? It’s never too late to take steps to improve it with the strategies mentioned above.

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Allison Martin is a Certified Financial Education Instructor (CFEI), syndicated financial writer, and author. Her work has been featured in The Wall Street Journal, ABC, MSN Money, Yahoo! Finance, Fox Business, Credit.com, MoneyTalksNews, Investopedia, The Simple Dollar, and a host of other reputable publications. She also teaches the essentials of personal finance through seminars and workshops.


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