What Are the Advantages of Having Good Credit?

Mary McMahon
Mary McMahon

Good credit isn't just a cause for self-congratulation. Credit records are used for a variety of things, from establishing utility accounts to purchasing a home, and the better someone's credit is, the easier many routine tasks will be. Poor credit can make it difficult to open a bank account, rent a home, or get a good rate on a car loan, while good credit will clear the way in a variety of situations.

Having good credit will help get low interest rates on credit cards.
Having good credit will help get low interest rates on credit cards.

One of the major reasons why good credit is beneficial is favorable rates of interest. Low interest rates on loans are offered to people who appear to be low credit risks, as it is assumed that someone with good credit will pay the loan off in a timely fashion. People with bad credit will generally experience much higher interest rates, as the lender wants to protect itself in the event that the borrower defaults on the loan.

Those with good credit can get better interest rates on new credit cards.
Those with good credit can get better interest rates on new credit cards.

If people want to apply for credit cards and lines of credit for themselves or their businesses, a high credit rating is crucial. Poor credit may lead to the denial of an application, or to a very high interest rate on carried balances. People with high credit scores can also generally get higher balance limits, allowing for more flexibility with a line of credit, which can be extremely useful. They may also be rewarded with a waiver for annual fees, and other perks.

Poor credit may lead to the denial of an application.
Poor credit may lead to the denial of an application.

Even if people aren't interested in being able to access lines of credit, good credit is still important. Utilities such as phone and electric companies usually check credit before they open new accounts, and they may deny an account or demand a very high deposit if the credit check reveals a poor credit history. Landlords are also usually inclined to deny rental applications from people with bad credit, viewing them as potentially risky tenants.

People with good credit are more easily able to get loans.
People with good credit are more easily able to get loans.

A number of things can impact someone's credit record, making it important to safeguard one's credit record by regularly ordering credit reports to check for suspicious activity, and by doing things which will improve an overall credit record. A credit simulator program can be used to see how different activities will alter a credit score. For example, paying down outstanding balances will generally cause a credit score to increase, while missing payments or taking out a loan will cause a decrease. By managing money wisely, people can ensure that they have good credit to call on when they need it.

Someone with good credit can get better mortgage rates.
Someone with good credit can get better mortgage rates.
It is important to regularly check individual credit for suspicious activity.
It is important to regularly check individual credit for suspicious activity.
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments

anon309061

This web site really helped me and I learned a lot about credit and credit scores.

suntan12

Sunshine31-I agree with you. Many credit card companies also offer customers with a good credit rating the best interest rates.

I pay only 9.9% interest on my credit card, but I know people that are trapped with a credit card that has a 24% interest rate because of their bad credit.

It is best to maintain good credit rating in order to save you money when you need to borrow it.

sunshine31

I totally agree. Having good to excellent credit offers you preferred rates on loans and credit cards. The savings could be substantial.

For example, if someone with an excellent credit rating and a mortgage of $100,000 has a mortgage interest rate of 4.7% that will yield a mortgage payment of $518.64.

The same $100,000 mortgage for a borrower with spotty credit might obtain a mortgage with a rate of 8.5% interest.

This yields a payment of $768.91 which is a 52% increase in the payment that the person with excellent credit received. This is just one example of how having a good credit rating saves you a lot of money.

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