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What’s The Point of a Great Credit Score if You Never Use it?


These days it seems like you need a good credit score for just about everything.  Whether you want to buy a new car, apply for an apartment or even get a job, they all want to know what your credit score looks like.  It’s obviously important to maintain a good credit score but at a certain point, you’re going to have to use that score to apply for a line of credit or prove that you’re a worthy tenant.

The highest credit score one can achieve on the FICO scale is an 850.  But most of the time, in order to get the lowest financing rates or prove you’re a worthy borrower you won’t need anything higher than a 725-750.  So why on earth would anyone strive to achieve a score of 800+?  Some people are just over-achievers I guess.  On the other hand, I would prefer to use my good credit score in order to take advantage of all that credit has to offer.

Plan for Big Lines of Credit

Most people with perfect credit will tell you that the reason why they want perfect credit is so that when they apply for a big loan, like a mortgage, they can get the best rate.  But most financing agents will tell you that you don’t need a credit score of 800 to get the lowest rates.  Secondly, there are things you can do to prepare your score for applying for a big line of credit like paying off your balances to lower your utilization rate and not opening any new lines of credit in the 6-12 months leading up to your loan.

Since your credit score is essentially a snapshot in time, your score is always fluctuating.  If you make a large purchase of $5,000 and your total credit limit is only $10,000, then your utilization rate will reflect that temporarily.  At that moment in time, your credit score will be hurt by a high utilization rate(generally you want less than 30%) but once you pay off that amount your utilization will go back down and your score will shoot back up again.

Every time you open a new line of credit, a hard inquiry is triggered on your credit report.  Banks don’t like to see a ton of recent inquiries on your report so make sure that you don’t apply for any lines of credit like a credit card right before you apply for a mortgage.  Seems like common sense but you’d be amazed at how many people don’t take this into consideration.

Knowing how your credit score can fluctuate based on certain actions can give you a huge advantage in the credit game.  There are so many people out there who are afraid to apply for new lines of credit for fear that it will damage their perfect credit score.  I’m here to tell you that those people are crazy.  Once you’ve learned how your score can fluctuate, there are some awesome ways to utilize your score.

Credit Card Bonuses

This is probably the biggest benefit of a good credit score, you can sign up for credit cards that offer great sign-up bonuses.  There is a whole niche of travel sites and blogs dedicated to credit card churning and sign-up bonuses.  Some of the best offers are in the 50,000 point range and can be redeemed for anywhere from $500-$1,000 or more in cash, gift cards, airline tickets and even hotel stays.  Best of all, the rewards that you get are all tax-free.

Imagine a situation where you have a near-perfect score of 800 and you’re saving up for a down payment for a house.  Based on your calculations, you’re three years away from having enough saved up though.  Does that mean you can’t apply for any lines of credit for the next three years?  Absolutely not.

As an extreme example, you could actually apply for as many new credit cards as you wanted within that first year, capture the sign-up bonuses and then cancel all the cards.  Your score would drop during that first year(and for part of the second year), but by the time you were ready to apply for a mortgage, those inquiries would have disappeared(hard inquiries will only stay on your credit report for 2 years)

Refinance Your Home

Conversely, if you already own your home, then you have another opportunity to use your great credit score by refinancing.  Since we can’t predict the direction of interest rates, it makes sense to do a no-cost refinance which allows you to keep refinancing if rates continue to go down.  Each time you refinance, there will be a hard inquiry(and another if your loan is sold) but like with credit card inquiries, eventually they will disappear from your record.  Meanwhile, you’ll pay no money out of pocket and you’re able to continually capture the lowest interest rates.

Use it or Lose the Opportunity

For some, a great credit score may represent a status symbol or prove some type of financial worthiness.  But there’s really no benefit of holding on to such a valuable score if you’re never going to use it.  You could go along your whole life never applying for another line of credit and stay at 800+ but you’ll be missing out on all the opportunities that great credit can provide.  There are credit cards that will literally pay you $500 just for signing up and making one purchase.  If that’s not worth your time and a piece of your score, then I don’t know what is.

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Photo Credit: Oren Ishee