How Credit Score Can Impact Purchasing Power

You’re probably familiar with the concept of a credit score, but what determines your credit and how does it affect your financial decisions? Your credit score directly influences your purchasing power in several ways. This article explores how credit impacts purchasing power and provides actionable tips to improve your financial health.

What is Consumer Purchasing Power?

At its core, consumer purchasing power refers to an individual's ability to buy goods and services. It’s influenced by the value of money and inflation.

If your income rises at the same rate as prices, your standard of living remains stable. When income outpaces costs, your purchasing power improves. However, if prices rise faster than your income, your purchasing power—and your standard of living—decreases.

Why Purchasing Power Matters

Purchasing power is crucial when borrowing money, whether for a mortgage, car loan, or credit card. High purchasing power means greater access to funding and better loan terms.

For instance, inflation can erode the value of saved money. If prices increase and your income doesn’t, your saved dollars won’t stretch as far. The same principle applies to retirement accounts and other investments.

What is a Good Credit Score?

Credit scores typically range from 300 to 850, with higher scores offering better opportunities for loan approval, competitive rates, and more favorable terms. A commonly used scoring model, FICO®, calculates credit scores based on the following factors:

1. Payment history (35%)
2. Amounts owed (30%)
3. Credit history length (15%)
4. Credit mix (10%)
5. New credit (10%)

Here’s how FICO credit scores are categorized:

• Exceptional: 800-850
• Very Good: 740-799
• Good: 670-739
• Fair: 580-669
• Poor: 300-579

While scores between 670-739 are generally considered "good," lenders may have specific requirements for approval. Typically, higher credit scores result in better loan terms and lower interest rates.

How Purchasing Power Improves with Good Credit Scores

Strong credit scores can significantly boost purchasing power. Here’s how:

1. Better Interest Rates – Excellent credit typically leads to lower interest rates on loans, saving you money in the long term.
2. Higher Loan Amounts – Lenders are more likely to approve larger loans for individuals with good credit.
3. Lower Costs for Rentals and Insurance – With strong credit, you may qualify for reduced rental deposits and lower insurance premiums, leaving more room in your budget for larger purchases.

Increasing income, whether through a raise or side hustle, can also enhance your purchasing power. More financial resources make it easier to save for down payments on homes, cars, and other major purchases. Putting more money down upfront allows you to borrow less, reducing your overall interest payments and saving you money over time.

Credit Unions and Financial Wellness

For those looking to enhance their financial wellness, credit unions can be an excellent resource. Unlike traditional banks that prioritize profits, credit unions are member-focused and often provide more favorable terms on loans and savings accounts.

Credit unions typically offer:

• Lower Interest Rates on Loans – Reduced rates help members save money over the life of a loan, making large purchases more affordable.
• Lower Fees – Credit unions are known for lower or nonexistent fees, helping members keep more of their hard-earned money.
• Higher Interest on Savings – Many credit unions return profits to members by offering competitive rates on savings accounts and other investment products.

By exploring credit union membership and taking advantage of their financial tools and resources, you can improve your credit score, increase your purchasing power, and work toward long-term financial wellness.

Conclusion

Good credit is a cornerstone of financial wellness. It enables you to secure favorable loan terms, save more money, and build a stable financial future. Achieving financial wellness isn’t just about having more; it’s about using what you have wisely to reach your goals.

By focusing on improving your credit score and managing your finances effectively, you can boost your purchasing power and pave the way for major milestones like buying a home.