Benefits of Excellent Credit: More Than Better Loan Rates
Here is what you need to know to build good credit for the first time.
There is no other way to say it: Good credit is massively important.
An excellent credit history shows potential lenders that you’re likely to repay loans in full and on time, which can help you lock in better rates on mortgages and other financial products. Even more, the advantages of strong credit go far beyond receiving good rates on loans.
What is a good credit score, anyway?
It’s weird to say but there is no standard definition for “good” credit. FICO, Experian, TransUnion, and Equifax do not tell lenders how to interpret their reports; they just report them.
But “good” credit is often defined by creditors as a FICO score between 680 and 739. At 720, the median FICO score in the US is in the “good” range. This means half of consumers have higher scores and half have lower scores.
FICO scores of 740 and up are generally considered “excellent.”
As a mortgage consumer with good credit, you can get to the next tier — sometimes easily — and lower your borrowing costs.
Benefits of excellent credit
According to the National Association of Realtors (NAR), about 25 percent of the population has “excellent credit.” These lucky consumers who possess high FICO scores have many more financing opportunities available, and they pay less for them.
Here is how much you might save by increasing your credit score from good to great.
According to data from FICO, an applicant as of this writing with a good 680 score qualifies for an APR of 3.71 percent for a 30-year fixed-rate mortgage. For a $300,000 loan, that’s a monthly payment of $1,316.
An applicant with an excellent 760 score pays just 3.31 percent, saving $67 per month and over $24,000 over the life of the loan.
In addition, those with better credit scores may be able to finance with lower down payments. If mortgage insurance is…