By Farnoosh Torabi | Posted: 12/3/2018 | Updated: 5/29/19
A top-notch credit score offers more than just bragging rights: it can translate into big financial savings over the course of your lifetime. While different financial institutions measure your creditworthiness in different ways, one widely available assessment is VantageScore. Credit scores on the platform range from 300 to 850, and higher scores can translate into better interest rates, says Jeff Richardson, spokesperson for VantageScore. "Generally speaking, if you have a score above 720, you'll have access to better rates," he says. Scores above 800 are rated as exceptional.
To see how a good credit score can help, it's useful to look at mortgages. Let's say you've achieved an exceptional FICO score (the credit score associated with mortgages) and wanted to apply for a 30-year, fixed-rate, $300,000 mortgage. If your interest rate was 4.4 percent, your monthly mortgage payment would be $1,502.
If your credit score was 200 points lower—a "fair" score—then you might expect a slightly higher rate. Assuming it was 4.9 percent—just a half a percentage point higher—your monthly payments would come out to $1,592, an annual difference of $1,080, or a total difference of more than $32,000 over 30 years.
But you don't need to get a mortgage to reap the benefits of a great credit score. A high score can also get you lower rates on your credit card. “On many of our cards, we offer different tiers of interest rates, ranging by 7-8 percent from the lowest rate to the highest rate," says Tim Ferriter, managing director and head of card acquisitions, Chase. “A better credit score will qualify you for a lower rate."
For that matter, Ferriter notes, credit scores are also a factor in your approval for a credit card.
Bringing up your score
It's never too late to boost your score. A good place to start is with a clear understanding of how a credit score works. Here are the five factors that VantageScore uses to calculate its scores:
Now that you know how your credit is calculated, you can start thinking about specific steps to bring your score up. Paying down debt, paying your bills on time, and keeping your credit utilization below 30 percent are all good ways to boost your score.
If you stay dedicated to making the right moves, you should see improvements within three to 12 months. That may seem like a long time, but if you consider that a mortgage can span 30 years, waiting for a good interest rate could definitely be worth the wait!