Credit scores and credit monitoring are extremely important when it comes to managing debt and borrowing. A good credit rating is highly desirable, as it gives you better chances of getting approved for loans and receiving the best terms and interest rates. In this article, we will take a look at what you can do with an excellent credit rating.
Better Approval Chances
Many companies use credit ratings to determine whether to approve your application or not. When you have a poor credit rating, there is a greater chance of your applications being rejected because lenders may consider you a risky borrower. Conversely, when you have an excellent credit rating, you have a better chance of getting approved, as your credit history shows that you have borrowed responsibly in the past.
Saving Money on Interest
Interest rates on credit cards and loans are associated with the credit risk they represent. Having an excellent credit rating allows you to obtain the lowest interest rates, which can save you thousands of dollars over your lifetime. For example, if you apply for a $250,000 mortgage loan with a low interest rate of 2.842%, you will pay a total of $121,818 in interest over the loan term. However, if you apply with a credit rating of 640 and qualify for an annual interest rate of 3.455%, you will pay an additional $51,911 in interest over the loan term.
Lower Monthly Loan Payments
Since loan payments are tied to the interest rate, having an excellent credit rating can make it easier to afford your monthly loan payments for things like a mortgage or car loan. For instance, if you take out a $25,000 car loan over 60 months, with an excellent credit rating over 720, you could secure a monthly payment of $462. However, if you have a credit rating of 640, you would face monthly payments of $538. These significant differences can impact your monthly budget.
Qualifying for Higher Credit Limits and Loan Amounts
The amount of credit that a credit card company can extend to you is partly based on your credit rating. With an excellent credit rating, you’ve likely proven that you can handle credit responsibly. When applying for most major credit cards, you are more likely to receive a higher credit limit—provided your income is sufficient to handle that credit limit. Similarly, when applying for a loan, having an excellent credit rating will allow you to qualify for higher loan amounts, making a significant difference in the price of the home or car you can afford.
More Credit Card Options
Some of the best credit cards offer generous rewards and benefits, but they are only available to consumers with an excellent credit rating. With an excellent credit rating, you have a better chance of being approved for some of the top credit cards in the market. On the other hand, having a low credit rating greatly limits your credit card options. The ability to qualify for better credit cards can allow you to earn rewards such as cash back, gift cards, merchandise, and travel. Having more credit options available to you also means you can avoid predatory loans like payday loans, title loans, and high-interest mortgages. These types of short-term loans have the highest interest rates and often trap borrowers in a cycle of debt that is difficult to escape.
Searching for the Best Terms
Companies are more likely to approve you for credit when you have an excellent credit rating. This means you have the freedom to shop around with different creditors and lenders, and you can ultimately choose a credit card or loan that has the best terms. On the other hand, if you are struggling with your credit rating, limited options may force you to choose credit products that do not have the best interest rates.
Questions
Frequently Asked Questions (FAQs)
Is it possible to achieve a perfect credit score of 850 in the FICO system?
While it is not impossible to achieve a credit score of 850, it is difficult. According to FICO, only 1.6% of people in the United States have a perfect credit score.
Do I need a high income to have an excellent credit score?
Your income does not necessarily need to be reported in your credit score; therefore, you do not have to have a high salary to achieve an excellent credit score. However, you should earn enough income to qualify for borrowing and repayment, but it’s much more important how you manage debt well rather than the amount of money you make.
Is it worth trying for a perfect credit score?
FICO uses the term “exceptional” to describe the excellent credit score range. Once you reach the very good or exceptional range of 750 and above, you should have the same credit opportunities as others in that range, regardless of where your score falls within those numbers.
Source: https://www.thebalancemoney.com/what-can-you-do-with-an-excellent-credit-score-4582543
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