The New Basics of Credit: What a Good Credit Score Can Save You (Beyond Buying a Home)

The better your credit score is, the cheaper it is to borrow money for large purchases like a car or home. Each month, part of your payment will likely go towards interest. However, by improving your credit score, you can reduce that total interest payment.

WorkMoney has your guide to what makes up your credit score and how your score can save you money.

What Is a Good Credit Score?

A good credit score is considered to be between 670 and 739. Scores range from 300 to 850. Here are the ranges for each level of credit score:

• Poor: 300-579

• Fair: 580-669

• Good: 670-739

• Very Good: 740-799

• Exceptional: 800-850

What Makes Up Your Credit Score?

Your credit score is calculated using several factors. These are the components and their weighted impact on your overall credit score.

• Payment history (35%): This is whether you pay your bills on time. Payment history has the largest impact on your score.

• Credit utilization (30%): This is the percentage of available credit you’re using. Keeping your utilization low (under 30%) can help your score. This means if you have $10,000 in total credit, try to stay under $3,000 in total usage.

• Credit age (15%): Your credit age is how long you’ve had your credit accounts. Older accounts generally help your score.

• Credit mix (10%): Having a mix of credit types, such as credit cards, auto loans, and mortgages, can be beneficial to show the credit bureaus you’re financially responsible.

• New credit inquiries (10%): When you apply for credit, your score will very likely go down a few points. However, it’s normal that your score will rebound after you make on-time payments.

No single action will instantly improve your credit, but consistently making on-time bill payments and keeping credit use low can help build up your score over time.

5 Ways a Good Credit Score Saves You Money

1. Lower Auto Loan Rates

If you’re looking to buy a car and finance it, your credit score will be a significant part of how a bank or credit union evaluates your auto loan application.

Interest rates range from 4.55-21.77% APR, based on your credit score and other factors. So over the course of a loan, you could save thousands with a good credit score versus fair or poor.

2. Lower Mortgage Costs

You can save significantly when you’re shopping for a home. Here’s what that could potentially look like for potential homebuyers with varying credit scores:

3. Better Credit Cards

A good credit score can unlock credit cards with better features and lower borrowing costs. A good credit score will help you qualify for cards that offer:

• Lower APRs, reducing interest charges if you carry a balance.

• More valuable rewards, including better rewards and welcome bonuses.

• Higher credit limits, which can improve your credit utilization ratio and provide more financial flexibility.

Many rewards credit cards require applicants to have good to excellent credit, typically over a 670 credit score. Even if you pay your balance in full each month and avoid interest, a stronger credit score can still provide access to better rewards and more valuable card benefits.

4. Lower Car Insurance Premiums

In most states, insurance companies can use a credit-based insurance score when determining your premium. States like California and Hawaii, among others, restrict it. This isn’t the same as your FICO credit score; insurers use information from your credit history to calculate a separate insurance-specific score that helps predict the likelihood you’ll file a claim. Studies have found that drivers with stronger credit tend to file fewer claims, which is why insurers often reward them with lower rates. As a result, improving your credit score could reduce the amount you pay for car insurance each year.

5. Lower Utility and Cell Phone Deposits

Utility and cell phone providers may check your credit history to determine whether a security deposit is required. Customers with good credit are often able to start service without paying a deposit, while those with limited or poor credit may have to pay one before service begins.

Although policies vary by provider, maintaining a good credit score can help reduce these upfront costs and make it less expensive to set up essential services after moving or switching providers.

How to Improve Your Credit Score

If your credit score isn’t great, here are several things you can do to improve it

• Pay your bills on time. Payment history is the single biggest factor in your credit score. Even one late payment can hurt your score.

• Avoid unnecessary credit applications. Every time you apply for new credit, a hard inquiry will temporarily lower your score. Only apply for credit when you truly need it.

• Check your credit report for errors. Review your reports regularly for inaccurate late payments, incorrect balances, or accounts that don't belong to you. Disputing mistakes can help improve your score.

• Report your rent payments. Some rent reporting services, like Esusu, can report your on-time rent to the credit bureaus if your landlord participates. 

Rebuilding your credit isn’t an overnight effort. But the good news is that there are plenty of resources available to help you work towards a good credit score. Here are some places to start:*

• GreenPath Financial Wellness: GreenPath is a nonprofit debt management company that can help you understand your debt and repayment options. GreenPath offers credit counseling to WorkMoney members as part of a partnership between WorkMoney and GreenPath. Some additional GreenPath services may include fees, which GreenPath will disclose to you.

*WorkMoney does not provide credit repair, credit counseling, debt settlement, or debt management services. To the extent such services are provided by WorkMoney partners, please consult with those partners to determine whether such services are right for your specific situation.