Americans' credit scores are on the rise. The national average FICO score hit 700 last year, which is the highest it's been since 2006, just before the Great Recession. People with superprime credit scores of 800 or higher now outnumber those with subprime credit.
You don't need superprime credit to benefit from your credit score, though. In fact, while 800 is an excellent credit score, most lenders agree that a score of 740 or higher will get you the best interest rates.
Does your credit score fall in that 740-plus range? Here are some signs you may not be making the most of the financial benefits available to you.
1. You still have low credit limits
An excellent credit score will likely qualify you for relatively large lines of credit, as long as you have a reliable source of income. If your credit cards still have low limits, consider requesting a credit-limit increase.
People often assume that if they don't plan on spending $10,000, they don't need a $10,000 credit limit. But having a higher credit limit decreases your debt-to-credit ratio, which can increase your credit score. People with FICO scores of 785 or above use, on average, just 7% of the revolving credit available to them. While a credit utilization ratio of under 30% is considered good, this 7% average suggests that carrying a balance that is less than 10% of your total line of credit is ideal if you're going after a superprime score. Having a high credit limit on your credit card offers some cushion in case you ever have to make a major purchase or carry a significant balance. It's worth noting that your credit utilization ratio is updated continually and goes back down as soon as your credit card is paid off.
2. You're not negotiating
The most obvious benefit of a high credit score is access to low interest rates. However, many people take the first offer they get without leveraging their excellent credit to negotiate a better rate on a home, car, or personal loan. You can even call your credit card companies and ask if, in light of your high credit score and history of on-time payments, they'd be willing to lower your interest rate.
Consider the following table, which shows how much you'd pay for an auto loan of $25,000 with a 60-month loan term at two different interest rates:
|Interest Rate||Monthly Payments||Total Interest Paid|
As you can see, every percentage point counts. Negotiating a 1% lower rate saves you nearly $700 in this instance.
3. You're not refinancing your mortgage
Did you take out a home loan years ago? Well, you might want to consider refinancing.
Just as you can negotiate lower interest rates on your credit cards, you can also refinance your home at a lower interest rate. While refinancing a mortgage isn't always a good idea, it's often the case that you can refinance for a loan with significantly better terms if your credit score has improved dramatically since you took out your mortgage.
4. You're still paying high interest rates on old debt
If you're in this situation, it's time for a change. Your excellent credit score gives you access to loans and credit cards that could help you pay off your debt at very low, or possibly 0%, interest rates.
One option worth considering is a debt consolidation loan with a lower interest rate. Keep in mind that if the repayment period is too long, it can offset the lower rate, so be sure to do the math. If you can pay off your debt within the next 12-18 months, look into getting a balance transfer card instead. Many credit cards now come with offers that allow you to transfer your debts and pay them off at a 0% interest rate, as long as you're able to pay the debt in full by the end of the promotional period. Most balance transfer cards do charge a 3% balance transfer fee on the balance transferred, so keep that in mind when weighing your options.
5. You're paying interest on that flat-screen TV
You can take advantage of credit cards with 0% introductory APRs when making a major purchase that you can't pay for up front. Make sure you can pay off the balance before the introductory period ends. Otherwise, you could get hit with massive interest charges. Also keep in mind that if you accidentally miss a payment, your 0% APR deal will be canceled.
6. You're still paying for vacations
Low interest rates might be the most practical perk of excellent credit, but credit card rewards are easily the most fun. If you're not planning to finance any major purchases, such as a home or car, within the next two years, you could be using credit cards to get cash back, free flights, free hotel rooms, and more.
Shop around before applying for a rewards credit card to make sure you get a good deal. You'll find that lots of credit cards offer sign-on bonuses, and sometimes these bonuses can total 50,000 airline miles or even more during limited promotions. If you're planning a family vacation in the next year or two, keep your eyes peeled for a good sign-on bonus. If you strategize, you could end up scoring an almost free vacation thanks to travel credit cards.
7. You're not getting the best car insurance rates
Few people realize that credit scores are used to determine your car insurance rates. Even fewer people realize that you may be able to negotiate them, especially if you have excellent credit.
Negotiating with car insurance companies is trickier than negotiating with banks. Shop around and get a few quotes that are lower than your current rate. Call up your insurance provider and say that another company is offering you lower rates. Ask for a discount on your current rate, dropping in the fact that you have excellent credit and a clean driving record.
There's no use in having excellent credit if you don't take advantage of it. Figure out how to make your credit score work for you, and you could end up saving big on everything from vacations and expensive appliances to car insurance and your mortgage.