Credit scores range from as low as 300 to as high as 850. Since your credit score is based on how you borrow money, no one starts out with a high score. But if you make credit card and loan payments on time and don't borrow too much, your score will steadily go up.
You might already know some of the benefits of raising your credit score. You'll qualify for lower interest rates on mortgages and other loans, and you'll be able to open better credit cards with more valuable features.
Those are both important, but there are many other ways raising your credit score affects your life. Here are three more perks that could make life easier and save you money.
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1. It's easier and more affordable to rent a home
Landlords and property management companies usually run a credit check on every applicant. And whenever a credit check is involved, having a high credit score is a big advantage.
If there are multiple prospective tenants, the landlord may pick the one with the best credit score. After all, a higher score generally indicates that a person manages their money well and is more likely to pay rent on time. If you don't have a high score, you may have trouble finding a place to live, or landlords could require a cosigner on your lease.
Some landlords also use your credit score to decide how much you need to pay for the security deposit. For example, the deposit may be equal to one month's rent if your credit score is high enough. If your score is lower, the deposit could be one-and-a-half month's rent or two month's rent.
2. You could save on home and auto insurance
In most states, insurers can and do use your credit history when setting your premiums. People with lower credit scores are statistically more likely to file claims. Because that makes them a higher risk, insurers charge them more.
It's frustrating to pay more for auto and homeowners insurance because of your credit. On the bright side, raising your credit score could make those bills much cheaper.
It's not a small amount, either. Drivers with poor credit paid an average of $4,145 in 2023 for auto insurance, according to insurance research by The Motley Fool Ascent. Drivers with excellent credit paid less than half that for auto insurance: $1,947.
3. It's cheaper to set up utility services
When you set up an account with a local utilities company or a wireless company, you're applying for credit, in a way. You're going to use that service, and then pay the company back later.
For that reason, these companies normally run credit checks when you apply for service. So if you need to get electricity, water, gas, internet, or cellphone service, there will most likely be a credit check involved.
When you have a high credit score, you can get these services without paying anything upfront. When you don't, service providers often require a security deposit to protect them in case you don't pay your bill.
How to raise your credit score
A high credit score is valuable, and it's not complicated to get one. Several factors go into your credit score, but the most important are your payment history and your credit utilization.
Your payment history is a record of whether you pay your bills on time or late. However, not all on-time payments get reported on your credit file. It's usually just credit card and loan payments. Make sure you have at least one credit card, use it every month, and pay the bill on time. If you do that, your payment history will get better and better.
Your credit utilization is the amount of money you've borrowed compared to how much credit you have available. For example, if your card has a $1,000 credit limit and the balance is $100, then your credit utilization is 10%. A popular rule of thumb is to keep your credit utilization below 30%. It's also recommended to pay your credit card off in full every month, so you're not charged any interest.
As you build your payment history and maintain a low credit utilization, your credit score will improve. With just those simple financial habits, you'll be able to get a high credit score and all the benefits that come with it.
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