A good credit score is a numerical representation of an individual’s creditworthiness, indicating a positive credit history and responsible financial management. Credit scores typically range from 300 to 850, with higher scores indicating better creditworthiness. Here’s what defines a good credit score and why it is important:
Lower Security Deposits
Having good credit means you’ll have to put down lower security deposits when signing up for utilities, rental agreements, and other services. Most utility companies and landlords will check your credit when starting new service. They use your credit score to determine if you’re likely to pay your bills on time.
If you have a high credit score, it shows you have a good history of paying debts and expenses on time. This makes you a lower risk for providers. As a result, they will either waive your security deposit altogether or substantially reduce the amount. Typically, people with poor credit have to put down a deposit equal to 2-3 months of service when signing up for utilities. But with very good credit, you may not have to put down any deposit at all.
The same goes for rental deposits. Most landlords require 1-2 months rent as a security deposit when you sign a lease. But if your credit score is over 720, the landlord may waive this deposit or only collect half a month’s rent. This can save you hundreds or even thousands of dollars in upfront costs when getting new housing. The better your credit, the less risk landlords perceive you to be.
Good credit can save you a lot of money in deposits when getting essential services like electricity, gas, and rental housing. Maintaining responsible credit will ensure you pay lower security deposits compared to those with poor or no credit history.
Better Insurance Rates
Your credit score has a considerable effect on how much you pay for auto and home insurance. Insurance companies view individuals with higher credit scores as lower risks, and will reward those good credit scores with lower premiums.
Some studies have found that drivers with poor credit pay as much as 59% more on average for auto insurance compared to drivers with excellent credit. For home insurance, individuals with lower scores may pay up to 26% more than those with pristine credit. Some insurance providers even use your credit report and score as a factor when determining whether to approve your policy application at all.
The effect your credit has on insurance premiums can save or cost you hundreds of dollars per year. By building and maintaining a strong credit score, you not only increase your chances of approval, but gain access to the lowest possible insurance rates. Having good credit is an easy way to ensure you don’t overpay for your essential insurance coverage.
Easier Approval for Housing
Landlords frequently check potential tenants’ credit scores and reports when reviewing rental applications. They want to avoid renting to tenants with a history of missed payments or evictions. A good credit score signals to landlords that you reliably pay your bills. With a high credit score, you’re more likely to get approved for an apartment or home rental.
Landlords may also require a larger security deposit from applicants with poor credit to offset the higher risk. With an excellent credit score, you have a better chance of only paying the standard deposit. Some landlords may even waive the deposit requirement entirely for those with very high scores.
A solid credit history and score gives landlords confidence that you’ll consistently pay your rent on time every month. Before turning over the keys, they want to verify you have a track record of meeting your financial obligations. Your credit provides that reassurance.
Rental criteria can vary, but landlords often draw the line at credit scores below 600. Applicants with scores in the good to excellent ranges (670 and up) tend to have the best chance at approval. If your score needs improvement, take steps to boost it prior to applying. Pay all bills on time, lower balances on credit cards, and correct any errors on your credit report. With diligent work, you can raise your score and improve your rental prospects.