You’ve heard a lot about people who have bad credit. But the average American has a very good credit score which falls somewhere in the range of 720 to 740. So what kinds of benefits come with having good credit and what should someone with good credit be looking for?
Lower Rates and Payments
Probably the biggest advantage that comes from having a good credit score is being able to get lower interest rates on loans. The reason you have a good credit score is because you know how to manage your credit wisely. You pay back your loans and make payments on a timely basis. Lenders know by your credit score that you’re less of a credit risk–you’re less likely to default on your loan, so they’re more willing to give you a cheaper interest rate. And the lower your interest rate, the lower your monthly payment. In essence, having good credit saves you money.
Less Documentation, Less Hassle
Another big advantage to having a good credit score is you are more likely to qualify for a loan where you don’t have to document your income and assets as much. These loans are known as no or low doc loans.
You can “go stated” which means you have to disclose your income for the last two years, but instead of showing pay stubs and W-2s, you just show tax returns and bank statements.
If you get a “no-ratio” loan, you just declare your income without showing pay stubs, tax returns or W-2s. However, no-ratio loans still require you list your assets to reassure the lender that you can still pay back the loan.
There are also loans known as “no income, no asset,” or NINA for short. NINA loans only require you to disclose your name, Social Security number, the address of the property you’re buying and how much you intend to use as a down payment. This can be very useful for people who want maximum protection of their privacy.
Of course, the less documentation you provide, the higher your score has to be. And, of course, you need to have sufficient assets in exchange for providing less (or no) documentation. It’s also possible that the rate may be a little higher–less documentation means more risk for the lender since they’re basically taking you at your word. However, the more documentation you provide, the less risk to the lender and, thus, the lower your rate.
The Ability to Shop Around
As a result of your good credit score, the more freedom you have to shop around–for loans and for lenders. You can shop around for more types of loans since you qualify for more. You don’t have to go with the first one you find. It’s better to shop around for the loan that best suits your financial goals and your individual situation. For example, let’s say you just accepted a new permanent position and were moving with your family. You want your kids to grow up there and didn’t plan on moving. You might go with 30-year fixed-rate mortgage. But, in contrast, let’s say you wanted to invest in a rental property and needed some flexibility in payment. You might then go with an option ARM that allows you to make different types of payments at different times.
You also don’t have to go with the first lender you talk to. When you’re shopping around for lenders, you’re shopping for the best service, not the best rate. Look for a lender that caters to and cares about your needs, not their own. Find a lender that is willing to answer all your questions and go the extra mile to take care of you, even after the closing. You wouldn’t want to deal with a lender who charged you less in fees in the beginning only to find they’re not available or willing to help you with a problem that may arise later on down the line.
Having a good credit score means you have more options available to you. You can get loans with better terms and rates and you have more available to you when it comes to types of loans. But also remember, it may be worth it to pay a little more in fees or interest rate if it means the lender will bend over backward to take care of your needs.