Why It’s Never Been More Important to Have a Good Credit Score

A low credit score will always affect your ability to qualify for loans at decent rates. But given the current state of interest rates , having a good credit score is more important than ever.

In short, the loan numbers are not very good. As I said earlier this week , the auto loan denial rate rose to 14.2% in June, up from 9.1% in February, according to the Federal Reserve. Essentially, if you’re planning on buying a car or taking out a student loan soon, your best bet is to use a high credit score to access a lower rate. Here’s why you should prioritize improving your credit score now, and what steps you can take to actually achieve that boost.

Why you need a good credit score

That’s why you should make building and maintaining your credit a top priority, now more than ever.

Lower interest rates

The higher your credit score, the lower the interest rate you typically qualify for on loans and credit cards. Since interest rates are already high and will likely continue to rise, every fraction of a percentage point you can save will add up to significant savings over time. For example, increasing your score could mean the difference between a 5% interest rate and a 15% interest rate on a mortgage or car loan.

Higher chances of approval

Lenders have tightened approval requirements in a volatile economy. Borrowers with an excellent credit history have the greatest chance of receiving loans and credit cards on the most favorable terms. A high credit score signals to lenders that you are a responsible borrower.

More financial opportunities

Beyond loans and credit cards, your credit score can affect many aspects of your financial life. Landlords often check credit before approving tenants; some employers conduct a credit check before offering a job; insurers can use credit to set premiums. A clean credit history shows financial responsibility and opens doors.

Higher credit limits

For credit cards and lines of credit, the higher your score, the more likely you are to be approved for higher limits. Higher limits provide more flexibility in emergency situations. Additionally, your credit utilization ratio (the percentage of credit you use) remains lower if your limits are higher, which improves your score.

How to Increase Your Credit Score

Now is the perfect time to check your credit reports for errors, pay off balances, and develop good credit habits. Here are some habits that will improve your credit score:

• Make on-time payments every month , since preventing late payments accounts for 35% of your overall credit score. One late payment can lower your credit score by 100 points for many months.
• Having a good credit mix. Your credit mix determines 10% of your credit score, so having a variety of open credit accounts—credit cards, installment loans, and mortgages—can help improve your score.
• Using only a portion of your credit each month. The less you use, the better, since credit utilization accounts for 30% of your credit score. Here’s a guide to timing your monthly credit card payments .
• Holding very old lines of credit . Your credit history—the length of time you’ve had lines of credit open—makes up 15% of your credit score.

After a certain point, having an ultra-high credit rating no longer matters . The important thing is that with a little diligence, you can get a reliable loan to keep your financial options open, even in difficult times. For more practical tips on improving your credit score , check out this Lifehacker post .