Amidst the ongoing rise in consumer prices driven by increased inflation, there’s a significant avenue for saving money that many may overlook: elevating your credit score.
According to a recent study by LendingTree, raising your score from fair (580 to 669) to very good (740 to 799) could potentially lead to savings of $22,263 for your credit and loans. The largest chunk of these savings, approximately $16,677, is attributed to mortgages.
Overall, consumers could stand to save an additional $92 per month, based on estimations by LendingTree, considering four common types of debt: auto loans, credit cards, mortgages, and personal loans.
Although the total projected savings have decreased from the $49,472 calculated by LendingTree in 2022 due to shifts in the interest rate landscape, individuals with good credit scores still hold a notable advantage.
“There is little in life that’s more expensive than crummy credit,” emphasized Matt Schulz, chief credit analyst at LendingTree.
Improving your credit score can translate to tens of thousands of dollars in savings over your lifetime through lower interest rates, reduced fees, and more favorable loan terms, Schulz pointed out.
“A lot of people are relying on credit cards and loans for purchases,” noted Bruce McClary, senior vice president at the National Foundation for Credit Counseling, citing data from the last quarter of 2023. “Many people right now are still struggling with the cost of living and keeping up.”
Regarding the ideal credit score, Schulz advised that prospective lenders utilize it to assess your financial behavior, particularly regarding your likelihood to repay a loan promptly.
Scores typically range from 300 to 850, with anything above 700 considered acceptable. However, aiming for scores higher than 700, ideally around 740 or 750, significantly improves your loan approval chances.
“If your score is lower — around 670 or 680 — you will still have a lot of options,” Schulz assured.
It’s worth noting that credit scores may vary depending on the provider, such as FICO or VantageScore. When applying for a loan, Schulz recommended inquiring which score the lender will check.
Improving your credit score involves a multifaceted approach. Factors such as current unpaid debts, bill payment history, types of loans, account longevity, credit utilization, recent credit applications, and outstanding debts influence your score.
Monitoring your credit report regularly for inaccuracies and fraudulent activities is crucial, Schulz emphasized. Correcting discrepancies promptly by contacting the credit bureau and lenders is advised.
One effective method to quickly enhance your credit score is by requesting your lenders to raise your credit limits, thereby reducing your credit utilization. Additionally, paying down balances and consolidating debts can be beneficial.
Automating payments helps prevent missed due dates, which can negatively impact your score. Beyond loan rates, credit scores may impact other financial aspects, such as car insurance rates, as recent Bankrate research has shown.
Shannon Martin, a Bankrate analyst, suggested that an improved credit score could lead to adjustments in your auto insurance policy by reporting the change to your insurer.
