Much like good budgeting and setting savings goals, having a strong credit history is one of the cornerstones of smart personal finance.
It also really pays off. The effort you put into building your credit has a number of benefits, both tangible — cash in your pocket — and more ephemeral, like a bit of metaphorical swagger in your financial step.
Here are a few perks you can expect when you have great credit.
1. Lower interest rates when borrowing
Most lenders rely on your credit scores to set your interest rate. Having a high credit score will help unlock the lowest rates for just about any kind of borrowing, from credit card 0% APR offers to lower rates on auto loans and mortgages.
Consider this example:
- The average price of a new vehicle is nearing $50,000. With 20% down, you’d need to finance around $40,000.
- Experian data shows that the average interest rate on a new vehicle loan ranges from 5.25% up to a whopping 15.77%, depending on your credit score.
Using that data, we can see how much an average $40,000 auto loan, with a typical 60-month term, would cost for each credit score group:
| Credit Score Range | Averate Rate | Monthly Payment | Total Interest |
|---|---|---|---|
| 781 to 850 | 5.25% | $759 | $5,566 |
| 661-780 | 6.87% | $790 | $7,376 |
| 601-660 | 9.83% | $847 | $10,792 |
| 501-600 | 13.18% | $914 | $14,829 |
| 300-500 | 15.77% | $955 | $17,310 |
Data sources: Experian and author’s calculations.
Overall, having a high credit score could save you around $200 a month, which is almost $12,000 in total interest over the life of your loan.
2. No down payment for postpaid bills
Some services you need to pay for in advance; your streaming services bill you before they activate your service. But some types of services, like home utilities and cellphone bills, are postpaid, meaning you pay your bill at the end of the service period.
Companies with postpaid products have to trust that you’ll actually pay for the services you received, so they check your credit history.
If you have a low credit score, the utility or cellphone companies may want you to make a down payment or security deposit before they’ll give you service. With a high credit score, however, you’ll rarely be asked for money upfront.
3. Easier time getting small business funding
Many types of small business funding, especially when you’re just starting out, will require you to agree to a personal guarantee. This essentially means that you agree to take personal responsibility for the debt regardless of what happens with your business.
Due to that personal guarantee, small business lenders will check your personal credit when you apply for financing. A high personal credit score can make it much easier to get approved for small business funding.
On the flip side, having a lower personal credit score could mean your business funding request is denied. At the least, it may mean you’ll be stuck paying higher interest rates than applicants with better credit history.
4. The confidence to apply for whatever you want
This is the most underrated perk of a high credit score, in my opinion. A high credit score gives you the confidence to apply for any credit card or loan because you know your credit history shows you’re a good candidate.
For example, some of the more elite travel rewards credit cards require you to have excellent credit to qualify. And there are several lenders who only offer loans to people with high scores.
This is not to say that great credit will guarantee you anything. However, I never have to worry that my credit score will be the problem that gets my application denied.
Building credit is a (worthwhile) marathon
It can take several years of conscientious effort to really build up an excellent credit score. That effort is worth making. A strong credit history not only gives you more opportunities, it also saves you money. Keep these four perks in mind when you’re building your credit.