Borrowing

Here’s Why It Really Pays to Have a High Credit Score

Tim Stobierski

Like it or not, those three-digit credit scores have a lot of sway over our lives, affecting everything from our ability to qualify for loans to our romantic prospects. (In a recent survey, 69 percent of respondents said a good credit score is a very or extremely important quality in a potential mate—outranking humor and attractiveness.)

So it’s easy to understand why more people are striving for a perfect score these days. Through compulsive monitoring and management, an estimated 3 million Americans now have a perfect FICO score of 850 and more than 41 million have at least an 800.

Perfection isn’t really necessary though—except for bragging rights. “You can be 90 to 130 points off a perfect score and [still] get the best deals lenders have to offer,” says credit pro John Ulzheimer, formerly of FICO and Equifax.

Getting your credit score into that “excellent” range of 720 or more is definitely worth the effort. And not just because you’ll get better deals on car loans, cards and mortgages.

Related: 5 Ways to Fix Your Credit Score in Five Months

1. You may edge out the competition for work.

Imagine you applied to your dream job, and the hiring manager narrowed down the competition to you and one other candidate. You’ve got similar skills, education and experience. Who’ll get the job? Probably the one with the cleaner credit report.

Some 47 percent of employers check credit reports of job applicants as a part of the hiring process, and use that information to help make their decision. “It's all about your personal responsibility and how that will bleed over into the office,” says Ulzheimer. “Would you want to hire a tax accountant who has a tax lien on their personal credit report?”

2. You’ll score better rates on loans.

The lower your credit score, the more expensive it is to borrow money. “If you have crummy credit, you can still find places that will loan you money. You just might not be very happy with the terms they offer,” says credit expert and CreditCards.com analyst Matt Schulz. “Great credit means more doors are open.” 

Say you’re applying for a 30-year fixed mortgage for $200,000. According to myFICO.com, if your credit score is 620-639, you qualify for an interest rate of 5.044 percent, which translates to a monthly payment of $1,079 and $188,450 in interest paid over the life of the loan. Up your score to 680-699, and your rate drops to 3.854 percent, your monthly payment to $938 and your total interest paid to $137,706.

But increase your score to 760 or better, and you could score a rate of 3.455 percent and monthly payment of $893. And your total interest paid is (a comparatively cheap) $121,506. That’s a savings of $67,000 just for having a high credit score!

3. You’ll have access to valuable credit card benefits.

A healthy credit score can help you qualify for higher credit limits on existing credit card accounts—which can improve your debt-utilization ratio, a key metric that measures how much debt you have compared to available credit—as well as give you access to new cards with lower interest rates and/or premium perks. That could include valuable rewards programs, cash back offers and travel benefits (like automatic upgrades or emergency insurance).

What perks do the credit experts like best? Zero-percent introductory rates and balance-transfer deals, which are particularly helpful if you’re trying to pay off debt faster. “There’s really nothing better than ‘free money,’ or a period where your credit card debt is interest-free,” says Ulzheimer. Just remember to read the fine print, and make a plan to pay off your balance before the promotional period expires.

4. You can save money on waived security deposits.

One more reason to boost your score? Having a high credit score can save you money in the form of waived security deposits on apartments and vacation rentals, car rentals, utility setups and even cell phone contracts.

“Someone with a higher score is more likely to pay their obligations on time,” says Ulzheimer. “That's why tenant screening, property management and utility companies will give you a break on security deposits when you open accounts or apply for housing. They're more likely to get paid, so there's less of a need for deposits.”

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