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Credit as an Asset: Why Your Credit Score Matters
Money SmartsFebruary 3, 2025
When most people think about assets, they imagine things like cars, homes, or savings accounts. These are tangible items that hold value and can improve your long-term financial health. Managing them wisely often requires careful planning and responsibility.
However, there is another important asset that many don’t think about – their credit. This three-digit number can affect almost every aspect of your personal and professional life. It plays a role in how much you pay for loans, whether you can rent an apartment, and even the types of jobs you qualify for.
Read on to learn more about the benefits of a good credit score.
What Is a Credit Score?
A credit score is a number that represents your ability to manage debt and make payments. It is based on several factors like payment history, total debt, and how long you have had credit. Most scores fall between 300 and 850, with higher numbers reflecting better creditworthiness. This number is important because lenders use it to decide if they will approve you for loans and at what interest rate.
It’s essential to understand how it affects your overall financial health. A higher score can lead to lower interest rates on loans and better offers from credit card companies. On the other hand, a lower one can make borrowing more expensive. By keeping track of your score and working to improve it, you can save a significant amount of money over time.
Credit Scores and Auto Loans
Your credit can impact the interest rate you receive when you apply for an auto loan. Lenders use this number to decide how much risk you pose as a borrower. You will likely face higher rates if you have a lower score.
Car shoppers with scores between 650 and 699 can expect rates to be double those of top-tier borrowers. For those with numbers between 450 and 649, rates could be three times higher.
The difference in interest rates can add up over time. If your score is below 700, you could end up paying thousands more over the life of your car loan. For example, the money saved between a score below 620 and one above 720 could be $109 per month. For a five-year, $20,000 loan, that adds up to $6,540 in savings!
The Impact of Credit Scores on Mortgages
When buying a home, your score plays a huge role in securing a mortgage. Lenders use your credit score to determine both approval and the interest rate they offer you. Higher numbers make you a lower-risk borrower, which means better loan terms and a lower interest rate. Even a small improvement can result in significant savings over the life of a mortgage.
According to the loan savings calculator on myfico.com, improving your score from 620 to 760 can save you $180 per month on a $200,000 home loan. Throughout a 30-year mortgage, that’s $64,000 in savings. If you have a lower credit score, consider putting off your purchase for another year or two while you build your credit.
Credit Scores and Job Opportunities
Many people don’t realize that your credit history can affect your career prospects. Employers in certain fields often use this information as part of the hiring process. This is especially common for positions that require financial responsibility.
According to a survey from HR.com, 25% of human resource professionals check credit reports when hiring for some positions. Six percent of employers check this information for all applicants.
Why do employers care about your credit? They believe it is a sign of your financial responsibility. A history of missed payments or high debt can make you seem unreliable, particularly for roles involving money management. In a competitive job market, maintaining good credit can give you an advantage.
The Role of Credit in Student Loans
Your credit history also affects your ability to secure a student loan. It influences the interest rates that private lenders offer. If you or your parents have a strong credit history, you are more likely to qualify for lower rates. For many families, this can make higher education more affordable.
Refinancing student loans is another area where good credit can lead to savings. Borrowers who choose a shorter repayment term can reduce their interest rate by over two percentage points. However, a good credit score is typically required to qualify for refinancing options with favorable interest rates. Lenders often require a score in the high 600s or more for approval.
Strategies to Improve Your Credit Score
One of the most important things you can do to increase your credit score is to pay your bills on time. Payment history is the largest factor that determines your score. Setting up reminders or automating payments from your bank account can help you avoid late fees and keep your score on track.
Another key strategy is to keep your credit card balances low. This is known as your credit utilization rate, and it refers to how much of your available limit you are using. Experts recommend keeping this number below 30%. Paying off balances and keeping your debt manageable will improve your credit over time.
A good credit mix can also help. Having a variety of lines of credit, such as credit cards, loans, and a mortgage, shows that you can manage different kinds of debt responsibly. It’s important not to open new accounts just for variety. Focus on what you need and can manage effectively. Additionally, avoid closing old credit accounts, as a longer credit history can positively impact your score.
Long-Term Benefits of Maintaining a Strong Credit Score
Maintaining a higher credit score gives you access to better financial products. This includes lower interest rates on loans, higher credit limits, and more favorable terms on credit cards. Borrowers with strong credit can also negotiate better loan terms, which means less money spent on interest over time.
In addition to monetary savings, a strong credit history offers peace of mind. You’ll have access to more affordable loans should an emergency ever arise. This is why maintaining strong credit is a key part of building security and achieving long-term goals.
Start Building a Stronger Financial You
Your credit is one of the most important assets you have. It impacts almost every part of your life, from securing a car loan to qualifying for a mortgage. It can even influence your career and ability to fund your education.
If you’re uncertain about where to begin or would like support, we’ve got your back. At Great Lakes Credit Union, we care about the financial well-being of our members. This is why we offer personalized credit counseling services to help you achieve your goals.
Schedule your free consultation to learn more
The information in this post is for educational and informational purposes only and does not constitute investment or financial advice. You should consult a licensed financial advisor before investing in any financial product or service.