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Credit matters when looking to buy a house, car or any other pricey asset. Unless a consumer is flush with cash, the path to home and vehicle ownership may go through a mortgage or a loan. Good credit can provide you with terms and privileges not available to a person with poor credit, including lower interest rates and increased borrowing capacity.

We delve into what constitutes a good credit score and the reasons why it is important to have a good credit score.

Recommended: What Credit Score Is Needed to Buy a Car

What’s Considered Good Credit?

Consumers with standard credit scores of 661 or greater are considered to have good credit, because they rank as prime or super prime in terms of their risk assessment. A bad credit score falls on the lower end of the range and a good credit score falls on the higher end of the range.

Many credit scoring models, including the standard FICO® Scores and VantageScore 4.0, measure an individual’s credit risk on a three-digit scale ranging from 300 to 850. The highest risk group are consumers with deep subprime credit scores from 300 to 500, and the lowest risk group are consumers with super prime credit scores from 781 to 850, according to Experian.

Consumers may build and attain good credit by paying their bills on time, maintaining a mix of accounts and keeping their revolving balances under 30% of credit limits.

Recommended: What Is the Difference Between TransUnion and Equifax?

8 Benefits of Good Credit

Here are the eight core benefits of good credit, which highlight why it is important to have a good credit score:

Benefit #1: Easier Access to Credit

Good credit may provide you with easier access to additional credit. When a consumer applies for a credit card or personal loan, lenders may analyze the consumer’s credit report and credit score to make an informed decision on whether to approve or deny the application. A person with good credit is considered low-risk and therefore has an easier time getting approved for a personal loan compared to high-risk borrowers.

Benefit #2: Lower Interest Rates

Consumers with good credit may qualify for lower interest rates when borrowing money. For example, available financing data for new vehicle purchases in the first quarter of 2022 show consumers in the deep subprime category of bad credit have obtained auto loans with 14.76% interest on average. Meanwhile, consumers in the super prime category of excellent credit secured 2.40% interest rates on average. That amounts to an over 12 percentage point difference in interest rates.

Benefit #3: Lower Car Insurance Premiums

Many auto insurance companies use credit-based insurance scores to help categorize consumers by risk and determine what premiums they may pay. Under this practice, higher-risk consumers may pay higher auto insurance premiums than lower-risk consumers. In some states, having good credit or improving your credit score may lead to lower auto insurance premiums over time.

Benefit #4: Increased Borrowing Capacity

Consumers with good credit may obtain larger credit limits than those with poor credit. This could translate to greater spending power on a credit card and the ability to make larger purchases on credit. Having good credit also puts you in a better position to apply for and obtain new credit.

A bolstered borrowing capacity is not limited to credit cards either — credit unions and banks may offer personal loans to consumers with good credit. Such loans can help you consolidate debt, finance large purchases or obtain fast cash to weather an unforeseen emergency. Personal loans also may command lower interest rates than credit cards.

Recommended: Does Net Worth Include Home Equity?

Benefit #5: Easier to Buy a Home or Car

Good credit can help you buy a house with a good mortgage rate or a car with affordable financing. Borrowing money to own a home or vehicle comes at a price that includes principal and interest. Consumers with good credit may qualify for 0% annual percentage rate loans for a car, where no APR means no interest or finance charges. Establishing good credit may also improve your likelihood of obtaining a low-APR mortgage, which translates to lower debt repayment obligations.

Automotive consumers had an average credit score of 738 for new vehicle purchases and 678 for used vehicle purchases in the fourth quarter of 2022, according to Experian’s quarterly report. This shows the average automotive consumer boasted good credit within the prime category of low risk.

Recommended: Should I Sell My House Now or Wait?

Benefit #6: More Apartment Lease Options

Signing a lease to an apartment may require good credit. Landlords who conduct credit checks might deny lease applications if a prospective tenant has bad credit. Or, those with poor credit may have to provide a higher security deposit for rental housing compared with a prospective tenant who boasts good credit. Tenants with good credit also may have more leverage to negotiate for lower rent.

Benefit #7: Helps Satisfy Employment Background Checks

Jobseekers can benefit from good credit, as some employers may consider a person’s credit score when making hiring decisions. The U.S. Department of Housing and Urban Development says that a low credit score or credit invisibility is a burden that can “limit housing choice and employment opportunity,” whereas “a good credit score is part of the pathway to self-sufficiency and economic opportunity.” The term “credit invisible” refers to consumers who lack a credit score or credit history.

Benefit #8: Ability to Obtain Security Clearances

Law enforcement officers with good credit could gain privileged access to classified national security information and FBI facilities. Any state or local law enforcement officer seeking a security clearance has to first satisfy a comprehensive background check that includes a review of credit history. The FBI shares secret or top secret information with local law enforcement officers who have obtained security clearances.

Poor credit history would not necessarily disqualify an officer from obtaining a security clearance, but significant credit history issues “may prevent a clearance from being approved,” according to information posted on the FBI’s website.

The Takeaway

Good credit is important for anyone who wishes to borrow money to help finance key purchases. Many consumers rely upon mortgages and loans to buy houses and cars, while many cash-strapped individuals turn to credit cards to buy essential goods and services ranging from food and electricity to water and rent for housing.

The eight benefits of good credit highlighted above showcase why it is critical to pay your bills on time and practice good budgeting. SoFi’s money tracker app allows you to monitor and keep track of your credit score, among other perks that could assist with financial planning and managing your net worth.

Photo credit: iStock/AndreyPopov

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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If you’re a soon-to-be homeowner, your lender might mention that you’re required to purchase hazard insurance. You may wonder, Is hazard insurance the same as homeowners insurance? In fact, hazard insurance is a part of your standard homeowner’s insurance policy.

Let’s look at the ins and outs of hazard insurance, including what it covers and what it doesn’t, and how much you can expect to pay for it.

Is Hazard Insurance the Same as Homeowners Insurance?

A common misconception is that hazard insurance is the same as homeowners insurance when, in fact, the former is a part of the latter. That’s because people sometimes refer to homeowners insurance as hazard insurance. You can think of it as a piece of fruit in a fruit and cheese basket — not the entire kit and caboodle.

Hazard insurance typically refers to the protection of the structure of your home and additional structures on the property (like a shed, deck or detached garage), whereas homeowners insurance as a whole also includes coverage for liability, additional living expenses, and personal belongings.

Recommended: What Does Flood Insurance Cover?

What Is Hazard Insurance?

Hazard insurance is part of homeowners insurance, and it typically covers the structure or dwelling, but not liability, personal belongings, or additional living expenses. Because it’s a part of a standard homeowners insurance policy, it cannot be purchased as a standalone policy. Rather, it’s folded into your homeowners insurance.

Hazard is oftentimes confused with catastrophic insurance, which is a standalone policy that covers against perils that aren’t included in a standard homeowners insurance policy, such as floods, earthquakes, and terrorist attacks.

What Does Hazard Insurance Cover?

Should there be damage to the actual structure of your home, the hazard insurance portion of your homeowners insurance policy will offer a payout. This usually includes damage to or destruction of the actual building of your home from natural events, such as extreme weather or a natural disaster.

However, the specifics of hazard insurance coverage will depend on whether it’s a “named perils” or an “open perils” policy. Read on for more details on what those entail.

Named Perils

Named perils essentially means events, incidences, or risks that are “named” or “listed” under your plan as covered. In other words, if it’s not listed, then it’s not covered.

A named perils policy typically protects against 16 specific types of perils, including:

•   Windstorms or hail

•   Fire or lightning

•   Explosions

•   Riots or civil disruption

•   Smoke

•   Theft

•   Falling objects

•   Vandalism or malicious mischief

•   Damage caused by vehicles

•   Damage caused by aircraft

•   Damage from ice, snow or sleet

•   Volcanic eruption

•   Accidental discharge or overflow of water or steam from HVAC, a plumbing issue, a household appliance or a sprinkler system

•   Accidental cracking, tearing apart, burning or bulging of HVAC or a fire-protective system

•   Freezing of HVAC or a household appliance

•   Accidental damage from electrical current that is artificially generated

A homeowners insurance policy that is a named perils insurance policy is usually less expensive than an open perils policy.

Open Perils

While a named perils policy will only cover what’s listed in your policy, an open perils policy will provide coverage unless something is specifically excluded and noted as such in your policy.

Typical exclusions under an open perils policy include:

•   War

•   Nuclear hazard

•   Water damage from a sewer backup

•   Damage from pets

•   Power failure

•   Mold or fungus

•   Damage due to an infestation of animals or insects

•   Negligence and general wear and tear

•   Smog, rust or corrosion

An open perils policy tends to be for newer homes or homes in low-risk areas. Additionally, because an open perils homeowners insurance policy tends to be more comprehensive, they typically cost more compared to a named perils policy.

Recommended: Loss of Use Insurance: What Is It and What Does It Cover?

What Isn’t Covered by Hazard Insurance?

Now that we’ve looked at what hazard insurance may cover, here’s what typically isn’t covered.

Flood Coverage

Flood coverage isn’t part of a standard homeowners insurance policy, so you’ll need to take out a separate policy if you want it. In fact, if you live in an area that’s a designated high-risk flood zone, you may be required to take out flood insurance.

The cost of the policy generally hinges on how much of a risk your home is, which factors in your location, and the age of your home.

Earthquake Coverage

Earthquake coverage is another item that hazard insurance doesn’t offer, so if you live in an area that’s subject to earthquakes, you may want to get an earthquake insurance policy. This can either be tacked on to an existing policy as a rider or purchased separately.

When you purchase earthquake coverage, your home is usually protected against cracking and shaking that can damage or destroy buildings and personal possessions. But if there’s water or fire damage because of an earthquake, then that generally would be taken care of by a standard homeowners insurance policy.

How Much Does Hazard Insurance Cost?

As hazard insurance is part of a standard homeowners insurance policy, you won’t need to pay anything extra. According to the most recent data from the Insurance Information Institute (III), the average cost of a homeowners policy in the U.S. is $1,272.

Keep in mind that the cost can vary depending on a host of factors: the location of the home, the cost to rebuild, the size and structure of your home, your age, your credit score, your deductible and the type of policy and amount of coverage you desire.

Do You Need Hazard Insurance?

In short, yes. As you will need homeowners insurance if you are taking out a mortgage on your home, and hazard insurance is folded into homeowners insurance, then you’ll need hazard insurance.

When shopping around for hazard insurance, think about what is required by your mortgage lender, and what coverage amount would be suitable for your home and situation. Play around with different deductibles and coverage amounts to see how they would impact your premium, and don’t forget that discounts can also lower the cost of your insurance.

The Takeaway

Hazard insurance and homeowners insurance aren’t the same thing. Rather, hazard insurance refers specifically to coverage for the structure of your home and is an element of homeowners insurance. What your hazard insurance policy will cover depends on whether you have a named or open perils policy, though it generally won’t extend to damage from earthquakes or floods.

If you’re taking out a mortgage on your home, you’re generally required to get homeowners insurance — and, by extension, hazard insurance. SoFi has teamed up with Experian to make it easy to get homeowners insurance. Experian allows you to get quotes from up to 40 top insurance carriers. You can match your current coverage to new policy offers with little to no data entry. Then bundle your home and auto insurance to save money. All with no fees and no paperwork.

Photo credit: iStock/MicroStockHub

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Shopping for auto insurance or dealing with an insurance claim? It’s common to hit a few potholes on the way to understanding car insurance.

Auto insurance terminology can be difficult to navigate, so this glossary may help you find your way.

Car Insurance Terminology

Here are basic auto insurance terms explained:

Accident Forgiveness

Accident forgiveness is a benefit that can be added to a car insurance policy to prevent a driver’s premium from increasing after their first at-fault accident.

Each insurer’s definition of accident forgiveness may vary, and it isn’t available in every state. Some insurers include it at no charge, or it may be an add-on, which means it could be earned or purchased.

Actual Cash Value

Actual cash value is the term used to describe what a vehicle was worth before it was damaged or stolen, taking depreciation into consideration. The amount is calculated by the insurer.

Adjuster

An adjuster is an employee who evaluates claims for an insurance company. The adjuster investigates the claim and is expected to make a fair and informed decision regarding how much the insurance company should pay.

Agent or Broker

Both agents and brokers help consumers obtain auto insurance, but there are differences in their roles. An agent represents an insurance company (or companies) and sells insurance to and performs services for policyholders.

A broker represents the consumer and may evaluate several companies to find a policy that best suits that individual, family, or organization’s needs.

Both agents and brokers are licensed and regulated by state laws, and both may be paid commissions from insurance companies.

At Fault

Drivers are considered “at fault” in an accident when it’s determined something they did or didn’t do caused the collision to occur. A driver may still be considered at fault even if no ticket was issued or if the insurance company divides the blame between the parties involved in the accident.

In some states, drivers can’t receive an insurance payout if they are found to be more than 50% at fault.

Casualty Insurance

Casualty insurance protects a driver who is legally responsible for another person’s injuries or property damage in a car accident.

Claim

When an insured person asks their insurance company to cover a loss, it’s called a claim.

Claimant

A person who submits an insurance claim.

Collision Coverage

Collision coverage helps pay for damage to an insured driver’s car if the driver causes a crash with another car, hits an object (a mailbox or fence, for example), or causes a rollover.

It also may help if another driver is responsible for the accident but doesn’t have any insurance or enough insurance to cover the costs.

Collision coverage is usually required with an auto loan. Learn more about smarter ways to get a car loan.

Comprehensive Coverage

Comprehensive coverage pays for damage that’s caused by hitting an animal on the road, as well as specified noncollision events, such as car theft, a fire, or a falling object. It is usually required with an auto loan.

Recommended: How Much Auto Insurance Do I Really Need?

Damage Appraisal

When a car is in an accident, an insurance company’s claims adjuster may appraise the damage, and/or the car owner may get repair estimates from one or two body shops that can do the repairs.

Policyholders can appeal an appraisal if it seems low and they have some backup to prove it.

Declarations Page

This page in an insurance policy includes its most significant details, including who is insured, information about the vehicle that’s covered, types of coverage, and coverage limits.

Deductible

This is the predetermined amount the policyholder will pay for repairs before insurance coverage kicks in. Generally, the higher the deductible, the lower the monthly premium.

Depreciation

Depreciation is the value lost from a vehicle’s original price due to age, mileage, overall condition, and other factors. Depreciation is used to determine the actual cash value of a car when the insurer decides it’s a total loss.

Effective Date

This is the exact date that an auto insurance policy starts to cover a vehicle.

Endorsement

An endorsement, or rider, is a written agreement that adds or modifies the coverage provided by an insurance policy.

Exclusion

Exclusions are things that aren’t covered by an auto insurance policy. (Some common exclusions are wear and tear, mechanical breakdowns, and having an accident while racing.)

Full Coverage

Full coverage usually refers to a car insurance policy that includes liability, collision, and comprehensive coverage.

GAP Coverage

Guaranteed asset protection insurance is optional coverage that helps pay off an auto loan if a car is destroyed or stolen and the insured person owes more than the car’s depreciated value. It covers the difference, or gap, between what is owed and what the insurance company would pay on the claim.

Indemnity

Indemnity is the insurance company’s promise to help return policyholders to the position they were in before a covered incident caused a loss. The insurer “indemnifies” the policyholder from losses by taking on some of the financial responsibility.

Liability Insurance

If you’re at fault in an accident, your liability coverage pays for the other driver’s (or drivers’) car repairs and medical bills.

Coverage limits are often expressed in three numbers. For example, if a policy is written as 25/50/15, it means coverage of up to $25,000 for each person injured in an accident and $50,000 for the entire accident and $15,000 worth of property damage.

The cost of liability-only car insurance varies by state, as does the required minimum level of liability insurance.

Recommended: What Does Liability Auto Insurance Typically Cover?

Limit

This is the maximum amount a car insurance policy will pay for a particular incident. Coverage limits can vary greatly from one policy to the next.

Medical Payments Coverage

Medical payments coverage (or medical expense coverage, or MedPay) is optional coverage that can help pay medical expenses related to a vehicle accident.

It covers the insured driver, their passengers, and any pedestrians who are injured when there’s an accident, regardless of who caused it.

It also may cover the policyholder when that person is a passenger in another vehicle or is injured by a vehicle when walking, riding a bike, or riding public transportation. This coverage is not available in all states.

No-Fault Insurance

Several states have no-fault laws, which generally means that when there’s a car accident, everyone involved files a claim with their own insurance company, regardless of fault.

Also known as personal injury protection, no-fault insurance covers medical expenses regardless of who’s at fault. It doesn’t mean, however, that fault won’t be determined. No-fault insurance refers to injuries and medical bills. If a person’s car is damaged in an accident and they were not at fault, the at-fault driver’s insurance company will be responsible for the repairs.

Optional Coverage

Optional coverage refers to any car insurance coverage that is not required by law.

Personal Injury Protection

Several states require personal injury protection (PIP) coverage to help pay for medical expenses that an insured driver and any passengers suffer in an accident, regardless of who’s at fault.

PIP also may cover loss of income, funeral expenses, and other costs. PIP is the basic coverage required by no-fault insurance states.

Primary (and Secondary) Driver

The person who drives an insured car the most often is considered its primary driver. Typically, the primary driver is the person who owns or leases the vehicle. If spouses share an insurance policy, they may both be listed as primary drivers on a car or cars.

A car may have multiple secondary, or occasional, drivers. These are generally licensed drivers who live in the same household (children, grandparents, roommates, nannies, etc.) and may use the insured car occasionally but are not the car’s primary driver.

Recommended: Cost of Car Insurance for Young Drivers

Primary Use

This term refers to how a vehicle will most often be used — for commuting to work, for business, for farming, or for pleasure.

Premium

A premium is the amount a person pays for auto insurance. Premiums may be paid monthly, quarterly, twice a year, or annually, depending on personal choice and what the provider allows.

Replacement Cost

Some insurance companies offer replacement cost coverage for newer vehicles. This means that if a car is damaged or stolen, the insurer will pay to replace it with the same vehicle.

Coverage varies by company, and not every insurance company offers replacement coverage.

State-Required Minimum

Every state has different legal minimum requirements for the types and amounts of insurance coverage drivers must have. The limits are usually low. Lenders may require more coverage for those who are buying or leasing a car.

Total Loss or ‘Totaled’

If a car is severely damaged, the insurer may determine that it is a total loss. That usually means the car is so badly damaged that it either can’t be safely repaired or its market value is less than the price of putting it back together.

If a state has a total-loss threshold, an insurer considers the car a total loss when the cost of the damage exceeds the limit set by the state.

Underwriting

The underwriting process involves evaluating the risks (and determining appropriate rates) in insuring a particular driver.

Insurance underwriting these days is often done with a computer program. But if a case is unusual, a professional may step in to further assess the situation.

Uninsured and Underinsured Motorist Coverage

Uninsured motorist and underinsured motorist coverage protects drivers and their passengers who are involved in an accident with a motorist who has little or no insurance. Some states require this coverage, but the limits vary.

Some states require this coverage, but the limits vary.

Uninsured/underinsured motorist bodily injury insurance covers medical costs. Uninsured/underinsured motorist property damage pays to repair a vehicle.

The Takeaway

Understanding car insurance basics is important for drivers. Knowing auto insurance terms, coverage your state or lender may require, and what other types of coverage could further safeguard your finances can make you a more informed consumer.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

Compare quotes from top car insurance carriers.

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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