Importance of a good U.S Credit Score  & How it can help you Financially
Banking Basics

Importance of a good U.S Credit Score & How it can help you Financially

Kshaunish

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Spoiler Alert! Long story short, it is super important. In this article, we highlight the importance of credit score, i.e. how it impacts nearly every aspect of your life in the U.S. and how you can build a good credit score.You must have heard the buzz around credit score or FICO score, and believe us - This is not overhyped. A credit score is really the defining factor of your financial future in the U.S. It impacts the cost of living - better the score, lower the cost of living, and vice versa. The importance of credit score cannot be emphasized enough.  Your financial history can affect how easily you get loans, get rented accommodation, make big-ticket purchases, and even get job offers. When you apply even for a phone connection, your credit score is checked, and your creditworthiness and risk in lending are evaluated (i.e., likelihood of you paying back). Now that you have understood the importance of credit score, let’s check what an ideal U.S. credit score is.

What’s the average credit score in the U.S?

It is known that good U.S credit scores fall between 670 and 739, on a scoring range from 300 to 850. If you’re wondering what’s the average credit score in the U.S? The average U.S Credit Score is 698.

Difference between Credit Score and FICO Score

Credit score and FICO score are often used interchangeably, which makes it all the more crucial to understand the difference between credit score and FICO score. A credit score is a score that measures your financial health and how efficiently you manage your credit and debt, on the other hand, FICO score is a score that can prove instrumental when lenders make borrowing decisions.

U.S Credit Score & Interest Rate based on Credit Score

To make it more intuitive, we bring you a simple illustration. Assume that you take a 15-year fixed loan of $100,000. The table below shows the interest rates (APR or annual percentage rate) that you’ll get based on your credit score. We have calculated the monthly payment and interest rates based on credit score.

FICO Score

Annual percentage rate (APR)

Monthly Payment

Total Interest Paid

760-850

1.986 %

$643

$15,716

700-759

2.209 %

$653

$17,572

680-699

2.387 %

$661

$19,067

660-679

2.602 %

$672

$20,888

640-659

3.035 %

$692

$24,608

620-639

3.584 %

$719

$29,423

Disclaimer: These are interest rates based on credit score as of 6th Jun’21

Suppose you are buying car insurance. It is like a line of credit to you, so before giving out the insurance, the company will check your credit score to assess how fiscally responsible you are, and based on that the policy rates will be determined.A person with a lower credit score is considered to be a risky borrower and hence they are charged higher interest rates by adding what we call “risk premium”. While a person with a good credit score is considered to be less risky and hence the banks and other financial institutions are willing to extend credit at lower interest rates as well. All of these hint at the importance of credit score. It affects not only the personal but also the professional aspect of your life. A very clear idea that we learn here is that: To save money, you need to build your credit score.Check out 10 Things You Can Do to Build Your U.S. Credit Score and build your credit score efficiently.

The image below shows the relationship between your credit score and the APR you get.

How a good U.S. credit score can help you in the long run

Having a good U.S. credit score gives you better financial credibility in the eyes of lenders and hence they are willing to lend you money at lesser interest rates, so you can borrow money affordably and then payback. As a matter of fact, other factors like your wealth, assets, existing debts, etc. also play a role in the calculation of the interest rate you get but credit score is the most widely used and tangible indicator. The best thing is that this one metric is totally in our control. Given that you are now aware of the importance of credit score, it is in your hands how responsibly you manage your finances and pay back debts in a timely manner.

Looking for Health Or Car Or Home Or any other Insurance?

The premium you pay is directly dependent upon your U.S. credit score. A good score will get you a lower premium and that is a direct money-saving.

Looking for a credit card?

Well here as well, your credit score impacts the APR you get.

Looking for a job in your dream company?

Some companies check your credit score before offering you a job.

Lower interest rates on loans

A good credit score fetches you lower interest rates. So, the amount you need to pay back for borrowing money is also lower.

Higher bargaining power

Financial institutions line up to give the best offers to customers with a good credit score. So it is in your hands to handpick the offers that suit you the most and save money.

Saving on security deposits on utilities

Getting utility services like electricity, phone connection, water, gas, etc. is like getting credit. If you have bad credit you may have to pay a security deposit to get access to these utility services in the U.S.

To get a better interest rate, you can spend a few months working to raise your credit score. Zolve recognizes the importance of credit score and so it provides you access to a Zolve credit card from Day 1 and hence you can start building your credit score as soon as you land in the U.S. If you’re a student then you should definitely check out Credit Cards 101 for Students and apply for your credit card right away.

Frequently Asked Questions on U.S Credit Score

What are 3 benefits of having a good credit score?

Three main benefits of having a good U.S. credit score are:

(i) Better rates for car insurance

(ii) Lower credit card interest

(iii) Easy approval for higher credit limits

What is a good credit score in the USA?

Credit scores that fall between 670 to 739 are considered good in the U.S.

What is more important for your credit score?

Your payment history is a key determining factor of your credit score. It accounts for 35% of it.

What is a good credit score to buy a house in the U.S?

The minimum credit score required to buy a house in the U.S is 620. But if the prospective homeowners want to qualify for the best interest rates on mortgages, then they should aim to have a credit score of 760 or higher.

Is credit score a USA thing?

No, credit score systems are present in most of the countries and not exclusive to the U.S.