Credit scores can be confusing to understand and difficult to optimize: mixing account types, balancing credit utilization, improving payment history, and understanding technical terms. It’s easy to get overwhelmed. Instead, it can be helpful to start by understanding why credit scores exist and how your credit score can directly benefit you.
Why exactly do lenders or other entities look at credit scores? To lenders, your credit score represents your character. By looking at your credit score, lenders can better assess the likelihood of defaulting on your loan. That is, whether you will pay the lenders back per the initial contract. In addition, if your credit score is relatively high, you may get better terms on your loan–like a lower interest rate.
Anything above a 670 is generally considered a good credit score. If your score falls between 670-850 you’ll likely qualify for more favorable terms and lower interest rates. A higher credit score increases your likelihood of approval for new credit cards, loans, apartments, and even higher limits on your credit card. You also get more negotiating power to make loan terms more in your favor. These are just a short list of examples of all the doors that are opened with a good credit score. Credit is a gift that keeps on giving; treat it right so it will treat you right.