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Your credit score is a three-digit number that businesses use to predict whether you will pay your financial obligations on time or not. Ranging from 300 to 850, higher credit scores mean you're less likely to default on credit cards, loans, and other bills. Having an excellent credit score puts you in the most favorable light of all when it comes to borrowing money.1 What counts as an excellent credit score can differ from one lender to the next. Generally, if your credit score is above 750, you’re considered to have excellent credit. More than 20% of Americans were considered to have an exceptional FICO Score, according to data from Experian.2 If you already have an excellent credit score, make sure you’re getting the most out of it. Better Chances for Approval More businesses are using credit scores to determine whether to approve your application. When you have a poor credit score, there's a greater chance your applications will be denied because creditors consider you to be a risky borrower. With an excellent credit score, you have a much better chance of being approved since your credit history shows you've borrowed responsibly in the past.3 Outside those circumstances, you’ll find it’s much easier to apply for credit cards and loans when you have an excellent credit score. Of course, you can quickly ruin an excellent credit score by making too many credit applications especially in a short period of time. Even with excellent credit, there’s still a small chance you could be denied, for example, if your income isn’t high enough or you’re carrying too much debt. Save Money on Interest Interest rates on credit cards and loans are directly related to the credit risk you pose, which is measured by your credit score. Excellent credit allows you to qualify for the lowest interest rates which can save you thousands of dollars over your lifetime.4 For example, if you apply for a $250,000 30-year fixed mortgage and qualify for a low rate of 2.842 percent, you’d pay a total of $121,818 in interest over the life of the mortgage. On the other hand, if applied with a credit score of 640 and qualify for an APR of 3.455 percent, you’d pay an additional $51,911 in interest over the life of the loan.5 Lower Monthly Loan Payments Since loan payments are directly tied to the interest rate, having an excellent credit can make it easier to afford your mortgage or car loan payments. Consider getting a $25,000 60-month auto loan. With an excellent credit score above 720, you could qualify for a monthly payment at be $462. A credit score of 640, on the other hand, would give you monthly payment of $538. That amount can make a big difference in your monthly budget. Since an excellent credit score gives you a lower monthly payment, you may even be able to choose a shorter-term loan which saves on the total cost of interest and lets you pay off your loan much sooner.
Qualify for Higher Credit Limits and Loan Amounts
The amount of credit a credit card issuer is willing to extend to you is based partly on your credit score. With an excellent credit score, you’ve likely demonstrated that you can handle credit responsibly. When you apply for most major credit cards, you’re more likely to get a higher credit limit, provided your income is enough to handle that credit limit.
Similarly, when you're applying for a loan, having excellent credit will allow you to qualify for higher loan amounts. This makes a major difference in the price of the home or car you can afford to buy.
Higher credit limits can also help improve your credit score, particularly when you use only a small amount of credit each month.
Similarly, when you're applying for a loan, having excellent credit will allow you to qualify for higher loan amounts. This makes a major difference in the price of the home or car you can afford to buy.
More Credit Card Options
Some of the best credit cards pay generous signup bonuses and rewards, but they’re only available to consumers who have the best credit scores. With an excellent credit score, you have a much better chance of getting approved for some of the best credit cards on the market. On the other hand, having a low credit score limits your credit card options tremendously.6
Being able to qualify for better credit cards can allow you to earn rewards that you can use for travel, gift cards, merchandise, and even cash back.
Having more credit options available to you also means you can avoid predatory lending like payday loans, title loans, and pawn shop loans. These types of short-term lending options have the highest interest rates and keep borrowers trapped in an impossible cycle of debt.7
Shop Around for the Best Terms
More companies are willing to approve you when you have excellent credit. That means you have the freedom to shop around with different creditors and lenders and can ultimately choose the credit card or loan with the best terms. On the other hand, if you struggle with your credit, your limited options may force you to choose credit products that don’t have the best interest rates.
You don’t always have to go far to shop around. If you haven’t opted-out of prescreened credit offers, you may receive automatically receive credit card or loan options from creditors and lenders. Or you can read a few credit card reviews to narrow down your selection.
Having an excellent credit score is well worth it. You won’t use your credit score all the time, but when you’re ready to apply for something, you’ll be glad that your credit score puts you in the best position possible.
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Article Sources
Fair Isaac Corporation. "What is a Credit Score?" Accessed June 30, 2020.
Experian. "What is the Average Credit Score in the U.S.?" Accessed June 30, 2020.
American Express. "Why Are Credit Scores Important?" Accessed June 30, 2020.
Bank of America. "How Credit Affects Interest Rate." Accessed June 30, 2020.
Fair Isaac Corporation. "Loan Savings Calculator." Accessed June 30, 2020.
Capital One. "Compare Credit Cards." Accessed June 30, 2020.
Consumer Financial Protection Bureau. "What is a Payday Loan?" Accessed June 30, 2020.