According to Capital One, 72 percent of US adults had a FICO Score of at least 670 (a “good” credit score) in 2022, with the average FICO score being 714.
While most have a “good” credit score, the figure above means that 28 percent of adults still have bad credit. There are about 258 million adults in the US, meaning approximately 72.24 million Americans have “bad” credit.
If you’re among those with bad credit, don’t worry. Boost your credit score today for five compelling reasons.
1. Quicker Business Loan Approval
If you plan on starting a small business but don’t have the necessary funding, you’ll likely need to secure a small business loan. Getting approval for a small business loan with a poor credit score can be challenging, if not impossible.
While lenders and credit unions don’t have a standard minimum credit score for loan applications, they generally want at least 700. You can still get a business loan with a lower credit score but expect high-interest rates and unfavorable loan conditions.
A 700 (or higher) credit score means you don’t pose a considerable financial risk to the institution from which you are getting a business loan. Lenders are likelier to give you the loan and offer lower interest rates.
If you have a less-than-stellar credit score, table your business plan temporarily. Your priority should be to boost your credit score first.
2. Better Mortgage Rates
Poor credit doesn’t just impact your business. It also affects your personal life.
One of the most significant things a low credit score will affect is your ability to own and pay for a home.
Even with a credit score of at least 670, you will end up paying thousands of dollars towards your mortgage over the life of the loan. Expect to pay thousands more for the same loan if you have poor credit standing (a score lower than 670).
US mortgage rates vary by state, but the average monthly mortgage payment in 2022 was $1,775.
According to MyFICO, an individual with at least a 700 credit score could receive an interest rate of 6.657 percent on a 30-year fixed mortgage. Another individual with a 620 credit score would receive an interest rate of 8.024 percent.
Meanwhile, the average cost of a home ( an existing single-family home, not a new build) in the US in 2023 is $387,000.
To illustrate the positive impact of a good credit score on mortgage rates, let’s look at the same home loan from the perspectives of two prospective homebuyers using the figures above.
Homebuyer A
- 700 credit score – 6.657 percent interest rate
- $387,000 home price with a downpayment of 20 percent at $77,400
According to Bankrate’s mortgage calculator, homebuyer A would pay $1,988 monthly for a 30-year fixed mortgage (excluding property taxes and homeowner’s insurance). $1,988 monthly in just one year is $23,856.
Homebuyer B
- 620 credit score – 8.024 percent interest rate
- $387,000 home price with a downpayment of 20 percent at $77,400
Homebuyer B would pay $2,276 monthly for a 30-year fixed mortgage (excluding property taxes and homeowner’s insurance). $2,276 monthly in just one year is $27,312.
Based on these calculations, the individual with a 620 credit score pays $3,456 more annually in mortgages for the same loan than the individual with a 700 credit score.
3. Easier Time When Renting
Poor credit doesn’t just affect your ability to own a home. Renting an apartment or condo with bad credit can also be difficult, especially in large metropolitan areas.
Unlike buying a home, renting an apartment or condo has fewer and less meticulous standards. Landlords don’t have a unified set of requirements for new tenants. There’s also no standard minimum credit score requirement for renting a property.
However, landlords generally prefer new tenants with a minimum credit score of 670. You could rent an affordable place in less populated, non-urban areas with a 600 to 650 credit score, but there’s no guarantee. Landlords may approve you as a new tenant but require you to pay a hefty deposit to offset the possible risks.
With a credit score of at least 670, you demonstrate to potential landlords you have a solid history of meeting your financial obligations. Furthermore, landlords will likely not require you to find a cosigner for your lease or pay a substantial cash deposit.
4. Lower Rates, Higher Limits, and Increased Rewards on Credit Cards
Seventy-seven percent of American adults have at least one credit card, with an average interest rate of 27.79 percent.
Just because you boost your credit score doesn’t mean credit card companies will approve your application automatically. They’ll still have to consider other factors, like your annual income, debt, and the number of credit cards you already have. However, having good credit will increase your chances of getting approval.
Furthermore, you will likely get lower interest rates from credit card companies if you have good credit. You will also enjoy higher credit limits and qualify for unique credit card rewards. You may receive various rewards, including exclusive discounts at specific stores, VIP treatment at certain establishments, regular freebies, higher cash-back earnings, and more.
Credit card companies will offer you better rewards if you have a good credit history because they know you are not a risky borrower.
5. Better Terms on Smartphone Contracts
The US has one of the world’s largest smartphone markets, with over 310 million Americans owning a smartphone—around 92% of the population.
It’s unsurprising why most Americans own and use a smartphone in today’s fast-paced digital age. After all, you can do virtually anything on a modern smartphone. You can talk to friends and colleagues using various instant messaging apps, shop online, pay bills, and more.
You need good credit to get an affordable and reasonable smartphone plan from any of the top mobile network providers in the US.
Each network provider works differently and has varied criteria for their mobile phone plans. Some providers, like Verizon, require a credit check but don’t publicly disclose their minimum credit score requirement.
Meanwhile, many providers offer deals for new mobile phone contracts, but these offers generally only apply if you have a good score; All the more reason to boost your credit score.
Providers often give you “premium” plans with more benefits (e.g., additional data, more call minutes, unlimited texting, etc.) if you have a good credit score. They are also much less likely to require you to pay upfront costs like a security deposit or a fee to lower your monthly payments.
You can still get a smartphone plan if you have poor credit, but having good credit makes the application process much smoother.
Start Monitoring Your Credit and Taking Steps To Improve Your Score
Do you want to improve your credit health? Start monitoring it. You can determine your current financial standing by checking your credit history, including past debts, payments, and delinquencies.
Regularly watching your credit also makes it much easier to understand what lenders see at any given time when they perform a credit check. For example, if you know you have a recent history of a few late payments, you’ll realize it may not be wise to apply for a new credit card for now.
Monitoring your credit also lets you identify inconsistencies, like incomplete or inaccurate information. You can file credit report disputes with the appropriate credit bureaus so they can correct their mistakes.
The good news is the Federal Trade Commission (FTC) requires credit bureaus to correct inaccurate reporting for free, so you don’t have to worry about a dispute burning a hole in your pocket. Furthermore, a favorable result in your credit report dispute can increase your score.
For example, identity errors are among the most common credit reporting mistakes.
Say you see several “hard inquiries” on your credit report over several months. When you apply for a new credit card, you get a hard inquiry because the lender checks your credit. Each can lower your score by up to 10 points, especially if there are too many over a short period.
You’re 100% certain you didn’t apply for several new credit cards in only a few months, so you dispute the information with the credit bureau.
The bureau conducts its investigation and determines the hard inquiries belonged to a different person with a similar name. The bureau then removes the inaccurate information from your credit report and adds back the points they docked you for all those hard inquiries. This will boost your credit score.
There are various ways to monitor your credit to catch errors and improve your score. You can use credit score services that often charge monthly fees. You can purchase reports from FICO and choose to get reports from just one or all three major credit bureaus (Experian, TransUnion, and Equifax) for a one-time fee.
However, paying for regular credit reports may not be the best option if you’re trying to save money and improve your credit health.
A free credit monitoring app can help if you want to be cost-effective. Such an app can help you regularly monitor your credit and set financial goals. You can get weekly updates and insights into the steps you need to take to improve your credit position without paying anything.
Good Credit Makes Life Easier
This article doesn’t cover all the benefits of a good credit score. There are many other advantages you can learn by doing your own research. However, the main takeaway is that good credit makes life much easier, whether it’s your business or personal life.
You don’t have to worry about lengthy loan approval processes, steep interest rates on your mortgage, and lenders declining your credit card application if you have good credit.
Featured Image provided by stevepb; Pixabay; Thanks!
