With consumer prices still rising due to higher inflation, there is one way to save money that you may be overlooking: raising your credit score.
Increasing your score from fair (580 to 669) to very good (740 to 799) may help you save $22,263 over the life of your credit and loans, according to a new LendingTree study. Mortgages represent the biggest portion of that savings, with $16,677.
Overall, consumers stand to save an extra $92 per month, LendingTree estimates, based on four common debt types: auto loans, credit cards, mortgages and personal loans.
The total projected savings is down from a sum of $49,472 calculated by LendingTree in 2022, due to changes in the interest rate environment. Nevertheless, consumers with good credit scores still have an advantage.
“There is little in life that’s more expensive than crummy credit,” said Matt Schulz, chief credit analyst at LendingTree.
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Improving your credit score can save you tens of thousands of dollars over the course of your life through lower interest rates, lower fees and other terms associated with loans, according to Schulz.
“It’s a big deal, especially when you consider what else you could do with that extra money,” Schulz said.
A lot of people are relying on credit cards and loans for purchases, based on data from the last quarter of 2023, said Bruce McClary, senior vice president at the National Foundation for Credit Counseling.
“Many people right now are still struggling with the cost of living and keeping up,” McClary said.
The credit score you should shoot for
Prospective lenders use your credit score to gauge your financial behavior, particularly when it comes to how likely you are to pay a loan back on time.
Credit scores typically range from as low as 300 to as high as 850.
Generally, if you are over 700, you are doing OK, according to Schulz. But the higher above 700 you can get your score, the better off you are, he explained.
“If you can get up to 740, 750, you’re going to get most loans that you apply for,” Schulz said.
If your score is lower — around 670 or 680 — you will still have a lot of options, he said.
Keep in mind that your credit score may vary by provider, such as FICO or VantageScore. If you’re applying for a loan, it helps to ask the lender which score they will check, Schulz said.
How to best improve your score
Your credit score is based on a mathematical model that takes multiple factors into account.
That includes your current unpaid debts; bill payment history; the number and kinds of loans you have; how long you have had your accounts open; how much of your available credit you’re using; any new applications for credit you have made; and whether you have any debts in collection, foreclosure or in bankruptcy.
To improve your score, it first helps to look at your credit report to see what might be weighing it down. You can monitor your credit report weekly, for free, from the three major credit reporting agencies by visiting AnnualCreditReport.com.
“It’s a great resource in situations where you’re looking for ways to improve your credit score,” McClary said.
Inaccuracies on those reports can drag your score down and alert you to potential fraudulent activities in your name, Schulz said. If you spot those discrepancies, it helps to contact the credit bureau and lenders as soon as possible, he said.
One way to quickly boost your credit score is to ask your lenders to raise your credit limits, which can bring your credit utilization down, he said.
The best way to improve your utilization is to pay the balances down, if you can afford to, he said.
It also helps to consolidate your debts. To assess your options, consider reaching out to a nonprofit credit counseling agency for advice.
Automating your payments can also help ensure you do not miss a bill due date, which can lower your credit score.
While your credit score affects the rates of the loans you receive, it may also affect other aspects of your financial life, such as your car insurance rates, recent Bankrate research found.
If your credit score improves, you may have your auto insurance policy adjusted by reporting the change to your insurer, said Bankrate analyst Shannon Martin.