Your credit score is one of the primary indicators of your overall financial health, and it plays a significant role in shaping your financial identity. Therefore, it’s important to understand how credit works and to start building credit early. Here is what you need to know about maintaining good credit.
What are the benefits of a good credit score?
If you’ve applied for a credit card or taken out a loan, you already have a credit score. The best way to build it is by making payments on time and in full. Over time, a good score can set you up for a strong financial future. Here’s why you want a good credit score:
1. Lower interest rates
One of the biggest advantages of having a good credit score is access to better loan terms. Whether applying for an auto loan, credit card, or mortgage, borrowers with higher scores often qualify for lower interest rates. While lenders also consider factors like employment income and debt-to-income ratio, your credit score plays a big part in determining your eligibility. Securing the lowest interest rate could save you thousands of dollars over the life of the loan.
2. Easier loan approval
Besides better loan terms, a good credit score also increases your chances of being approved for loans or new lines of credit. When you have a strong payment history, it can signal to lenders that you are trustworthy with borrowed money. This gives those lenders confidence that you will repay what you owe. Put simply, good credit makes it easier to get approved when you need it, like when you’re applying for student loans or a new housing complex.
3. Increased job opportunities
For some jobs, especially those that may require security clearance or financial responsibilities, companies may request your credit report during the hiring process. Employers see good credit habits as a sign of responsibility, timeliness, and reliability. After all, if you manage your own finances well, you’re more likely to handle company or client funds responsibly. One of the best ways to keep your credit strong is by consistently paying your bills on time.
4. Higher credit limits
Good credit scores can signal to lenders that you’re reliable, making it easier to qualify for larger credit limits. Credit cards or loans with higher limits give you more flexibility, especially when you have to cover unexpected expenses. They can also improve your credit utilization ratio (the fraction of credit you use vs. how much is available), which is a key factor in building a better score. With higher credit limits, you might also gain stronger purchasing power and more financial flexibility.
5. Credit card rewards
Using your student credit card wisely can open the door to better rewards. A strong credit history can help you qualify for cardmember perks. Some rewards may help you save money in the form of a credit to your account. This can help you to maintain consistent, responsible use. In turn, this helps strengthen your credit history when you make on-time payments and keep your balances low.
6. Easier renting approval
Even if buying a home isn’t in your plans, you still need to have good credit while renting. Many landlords and property management companies may want to check your credit scores. How you’ve handled credit and payments overall gives them insight into how likely you are to pay your rent on time each month. There’s a chance that you can still rent with poor or no credit, but you may be charged a higher security deposit or need a co-signer on the lease.
7. Lower insurance rates
Beyond borrowing and renting, your credit score can also influence what you pay for everyday necessities, like insurance. Insurance companies often use a credit-based insurance score – a number derived from your credit history – to predict the likelihood of you filing a claim. A higher credit score may help you save money on homeowners, auto, and other types of insurance. While poor credit alone won’t disqualify you from coverage, a low score can mean paying higher premiums.
3. Increased job opportunities
Companies that provide internet, cable, cell phone service, and utilities may review your credit history before starting service. Some of these companies require a security deposit to protect themselves against unpaid bills. Luckily, a high credit score can help you avoid it, as you may qualify for a security deposit waiver. If your payment history isn’t great, the utility company may request a deposit or ask for a letter of guarantee, in which a friend or family member agrees to pay your bill if you don't.
What is considered a good score?
Your credit score is a three-digit number that shows lenders how likely you are to repay your debts. Scores are calculated based on a variety of factors, such as your payment history, length of credit, or credit mix. There are a few different scoring models, but the most widely used one is the FICO credit scoring model. It ranges from 300-850 and is divided into five categories:
- Exceptional (800-850): You demonstrate excellent credit management and qualify for the best loan terms.
- Very Good (740-799): Indicates strong credit and access to competitive rates.
- Good (670-739): Considered acceptable by most lenders, with decent loan and credit options.
- Fair (580-669): Below average – many lenders see this as risky, and borrowing costs may be higher.
- Poor (300-579): Significantly limits financial options and often leads to higher deposits and interest rates.
A score of 670-739 is considered “good”. However, it’s smart to strive for the highest credit score possible. Over time, a strong score can reduce borrowing costs, open up new financial opportunities, and give you more flexibility with your money.
Now you understand how powerful building a good credit score can be. It helps you save money for the future and gives you more options when making financial decisions. But the ultimate benefit of good credit is a better financial position for your future. By making smart choices today, you’re setting yourself up for financial opportunities tomorrow. Whether that’s obtaining a car loan, landing your dream job, or simply enjoying peace of mind, your credit score can help you get there. All you need to do is start small, stay consistent, and let your credit work for you.
