How good Credit Affects you in the Long Term

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Your credit score affects almost every financial aspect of your life, from credit cards to mortgages and loans. Lenders and credit card issuers use your credit score to predict how likely you will make repayments on time. A good credit score can decrease the costs involved when you borrow money and can even influence a landlords’ willingness to rent to you.

Your track record, loan, and repayment history shows credit providers how reliable you are. The higher your trust rating, the more opportunities you have.

Here are some of the ways that good credit affects you in the long term.

Credit Cards

If you’re looking for a credit card, you’ll often find they have an APS (Admission Point Score) based on creditworthiness. Unless you have a good score and meet the institution’s APS, you might not get one.

If you have a low credit rating, 660 or less, you could pay up to 25% in interest. Usually, minimum monthly repayments are about 2% of your balance.

With a score of 750 or above, your interest rate would drop to 10%. You’d be able to pay your debts in less time, and the interest would be marginal.

Car Loans

Cars have become some of the most expensive purchases in the United States. In a report by Kelley Blue Book, they noted that as of November of 2020, the average price of a car in the U.S.A was $39,259. For such a significant purchase, a good rating could save you thousands in interest.

Lower interest rates and long-term loans are some of the benefits customers with good histories receive. If you pay your bills on time and keep your debt to a minimum, your rating will improve in no time.

Save as much as you can for the down payment. The more you’re able to pay as a deposit, the better your chances of approval for a loan. Regardless of the amount you borrow, you’ll end up paying less in the long run.


Being late with repayments on bills can lead to a bad rating. Other than card limitations and car loans, it affects the amount you’ll have available when you want to buy a house.

The higher it is, the lower your mortgage APR (Annual Percentage Rate). Each bank has specified limits on the cost to you when you borrow money.

Renting is always an option if you can’t afford a house. Even then, landlords do credit checks when looking at rental applications.

What Does My Credit Score Consist?

Your credit score is a combination of various factors on your credit report. Whatever is on it affects your score. Anything that isn’t, doesn’t.

Bank account balance, income, and net worth doesn’t appear on the report and therefore doesn’t influence the calculation.

Payment History

Bill-payment history makes up 35% of your score. Paying on time might not give you an 850 FICO Score, but it keeps it from falling.

Late payments, bankruptcies, collection accounts, charge-offs, repossessions, and foreclosures reduce your rating.

Fortunately, time gets taken into account when calculating your score. By avoiding late payments, and adverse payment history, your score will gradually recover.

Amounts Owed

Unknown to many, keeping a low balance-to-limit ratio (credit utilization ratio) helps you maintain your score. Credit utilization makes up about 30% of your FICO Score.

The total amount of debt, account types, and the number of accounts are a few aspects lenders consider. Try to keep your usage as low as possible. Experts advise spending less than 30% of the available amount. Therefore, if you have a $50 000 limit, don’t spend more than $15 000.

Repaying your credit card balance is a great start. As long as you pay larger loans like mortgages and car loans on time, their amounts won’t affect your score.

Length of Credit History

While FICO doesn’t care how old you are when it calculates your credit score, it considers your account ages. The length of your history consists of about 15% of the final score.

If you have more than one account, the age difference, along with their individual and combined age, is considered. Account activity and duration also plays an important role.

In this category, time is of the essence. The older your account is, and the higher your accounts’ average age, the more points you’ll earn overall.

New Credit

Sometimes, checking your report could hurt your score. Roughly ten percent of your FICO Score consists of the New Credit category. In this category, the number of new inquiries (a.k.a. credit checks) compiles your report.

Every time you apply for credit, the lender submits a hard inquiry to check a copy of your report. Hard inquiries stay on your account for 24 months and could damage your score for up to a year.

Although soft inquiries show up on your reports, they only appear when you check them yourself. They also occur when a lender targets you for a pre-approved offer. Luckily, soft inquiries never affect your rating.

We’d advise that you only apply for and open new lines when you need to.

Credit Mix

Ten percent of your final score are the types of accounts that you maintain. It’s best to have a diverse list of these.

Retail accounts, finance company accounts, and memberships can positively affect your credit score. If you have no revolving accounts on your report, creating a new account or getting a new card could be a long-term investment. If you do that, though, maintain it well, and don’t go overboard.


Maintaining a good score is extremely important. Lower interest rates, better terms, and down payment reductions are some of the benefits of a high score.

As with most things in life, self-control is vital. When you apply for credit or make a loan, consider how necessary it is for you to get it and if you can pay it back in time.

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