Benefits of Having a High Credit Score |
By Ashley Russell on July 8, 2011
.jpg.aspx?width=75&height=75) In modern financial America a lot of emphasis is put on individuals having high credit scores, to the point that nearly everyone can hum or sing part of the "Free Credit Score Jingle." But besides being a topic of many annoying commercials, there are real benefits and consequences of credit scores.
A high credit score is the envy of many for good reason. Higher credit scores allow individuals to receive the best interest rates on loans, mortgages and credit cards, as well as financing on larger purchases, such as cars. Creditors are willing to give individuals with high credit scores the best rates because they have a good credit history. This means that they have a long history of using credit responsibly and paying their credits back in full within the due dates of bills, if not sooner. Arguably this translates to there being lower risk on the finances that are loaned out to the individual, so the bank or financial institution does not feel the need to charge a higher rate to make up for the risk of the individual defaulting on his or her loan or credit obligation. When an individual has a lower credit score, financial institutions will charge higher interest rates to make up for implied risk of default that a poor score entails.
Although the measures of exactly what constitutes a "high" credit score differs from institution to institution, really anything around 700 or above is a good score. Each bank or financial institution does have their own records and rates for each credit score, but generally a 60 point difference (from a 760 to a 700 for example) will equal about a .2% change in interest rate for a loan according to FICO, or the Fair Isaac Corporation which measures credit risk. Although this seems like a very meaningless amount but over the course of a house mortgage you are looking at least a thousand dollars difference in interest payments. Having a good credit score can be very important to saving lots of money down the line. |
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