Everyone knows that a low credit score basically spells a death sentence for your ability to leverage money that you don’t have. Some major concerns you should have regarding bad credit should revolve around how to repair it. For example, you might want to look into how long a charge off stays on your credit since it plays a big role in determining your credit score.
Your credit score is formally a measure of how likely you are to default on a loan that’s made to you, with lower credit scores indicating a greater chance that you’re not reliable when it comes to paying back your debtors. So it makes sense that a low credit score leads to you having decreased purchasing power since it’s a big red flag to creditors that you’re less likely to pay them back and that you’re a riskier lending option.
But what about the other side of the equation? If there’s a financial punishment for bad credit, then is there a similar financial or purchasing power upside to having good credit? Naturally, there is a benefit. Let’s explore the details and reasoning behind some of these perks for people with “good credit.”
Eliminate Looming Concerns About Your Credit
This one might sound like a joke to many at first regarding the extent of psychological impacts relating to a low credit score and being in debt. But many of us underestimate the psychological impact that bad credit can have on our spending decisions and finances. For instance, did you know that being in debt can significantly drag you down emotionally and that people in debt are three times more likely to have mental health issues than those who are not in debt?
Lower Interest Rates
It’s almost a given that most banks and similar financial institutions will readily give you lower interest rates if you can show them that you have a solid credit score. Most research and surveys show that a credit score of 740 or above is necessary to secure the best interest rates. The rationale for why people with higher credit scores usually get lower interest rates has to do with the fact that they are less of a liability when it comes to lending out money, so the risk that the lender is taking is minimized and thus reflected in the interest rate of the loan.
Exclusive Rewards Programs
Quite a number of banks have great rewards programs cut out for their borrowers with the best credit. The perks that come with the credit cards issued by each bank or financial institution are usually individualized, but they typically cover things like high-rate rewards in certain categories like travel or great flat-rate rewards on all the purchases that you make with your credit card that can be redeemed into any number of things like cash back or gift cards at a certain vendor. For example, Chase’s Sapphire Preferred Card program offers points to vendor exchange system for Staples, Bose, and Dell Home.
Approval For a Higher Credit Limit
This benefit should be obvious in the sense that a higher credit score indicates that you’re more trustworthy when it comes to loans. Naturally, a bank might feel inclined to offer you approval for a higher credit ceiling if you’ve proven to them that you can handle your current credit limits over a reasonable period of time – say six months? A study performed by CreditKarma revealed an exponential trend in the average lending limit for borrowers based on their credit score ranges. Findings revealed that the people in the lowest credit score categories (561-580) had an average limit of $1496 while people in the highest credit scores (801+) usually had lending limits just shy of $10,000. Credit cards reward higher credit members with food, lodging, and travel benefits.
Better Renting Opportunities
Since most landlords use credit as a key factor in determining who is the most qualified tenant, a higher score will definitely help you secure more and better renting opportunities overall. If you think about it, renting is similar to lending money based on the idea that you are letting someone live in your property under the assumption that they can pay at the end of the month. Therefore, your credit score functions as a reflection of whether or not you’ll actually be able to pay at the end of the month.
More Favorable Insurance Rates
In addition to interest rates, your insurance rates will also go down as your credit score increases. This is a result of the same principle that’s based on the lower risk associated with lending someone money who has a higher credit score. These people are also less likely to become involved in anything that might lead to severe financial consequences and is, therefore, better candidates for insurance.