Credit Score Basics — Advantages of Good Credit

Advantages of Good Credit

When you use credit and credit cards wisely, you establish a good credit history by demonstrating to potential lenders that you are responsible and trustworthy.

With good credit, you have more financial options and opportunities. Your credit history is one of the most important factors banks will consider when you apply for a loan or a credit card. Building a good credit history makes it more likely you’ll be approved for loans you might need to help you achieve your financial goals. Plus, many lenders offer better terms and lower interest rates to people with good credit histories.

The keys to having good credit include:

  • Managing money carefully
  • Paying loans and bills on time
  • Staying within credit limits
  • Borrowing or charging only what you are capable of paying back

You risk having poor credit if you:

  • Make late payments
  • Pay less than the minimum on a credit card bill
  • Borrow more than you can afford to pay back
  • Have too many lines of credit with large balances
  • Have too many large amounts of available credit
  • Allow overdue accounts to go to a collection agency
  • Declare bankruptcy

Good credit may make it easier to:

  • Buy a home. When you apply for a home loan, the bank will check your credit report and credit score. If you have decent credit and enough income, you will likely get the loan. But the advantage of having good credit lies in the interest rate you will be able to get. With good credit, you will have a much wider range of available mortgage offers, and banks will be more likely to offer you a low rate if your credit score is good (over 700). Just one or two percentage points in interest can save you tens of thousands of dollars over the life of the loan.
  • Rent an apartment or house. When you apply to rent an apartment or home, the landlord will do a credit check. This helps the landlord determine how likely you are to pay your rent on time—based on how well you take care of the rest of your financial life. If you have good credit, you will be more likely to qualify for the apartment or home you really want.
  • Get a job. It might seem odd to think that your credit could affect your ability to get a job, but the truth is that more and more employers take your credit into account when deciding whether to hire you. People with good credit tend to be more trustworthy and responsible—and these are qualities employers want. So having good credit can really help you get a better job.
  • Finance a car. When you apply for an auto loan, whether it’s through a bank or dealer financing, the lender will check your credit report and credit score. If you have good credit, you will be able to negotiate for a lower interest rate. Even one or two percentage points on an auto loan can mean a difference of thousands of dollars.
  • Have phone or home utility accounts. With good credit, other companies (not just lenders) are likely to provide services to you right away. If your credit is bad, you could find yourself having trouble getting a telephone line, or even getting the electricity turned on.
  • Make major purchases such as appliances or furniture. With good credit, you can easily qualify for better credit cards and/or lines of credit that will enable to you to make major purchases and pay them back over time.
  • Borrow money. Lenders will look at your credit report before they decide whether to loan you money. If you have good credit, you are more likely to not only to get the loan you need, but also to get a better (lower) interest rate and terms.
  • Obtain a credit card. Credit card companies determine whether you qualify for the card you want by looking at your credit history. Having good credit will enable you to have a credit card with a lower interest rate and more benefits—such as rewards, cash back, and cash advances.

Why is your credit score so important?

Download this PDF to learn how your credit score affects your life

Learn how your credit score affects all aspects of your life.

Free Credit Score brochure (668 KB PDF)

Get Adobe Reader

Are you a financial rookie or a seasoned pro?

Financial Football

Use your money skills to score in a game of Financial Football.

This site is for education purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.