Why a strong credit score pays off in any rate environment — and how to raise yours

We talk a lot about interest rates when it comes to money — and for good reason. Rates determine how expensive (or cheap) borrowing can be or how rewarding our savings account is, among other things.

For this reason, we tend to fixate on how rates rise and fall and while that's certainly important, one outside factor plays even a bigger role in how our personal finances are affected: our credit score. The reality is that in really any rate environment, a good credit score will constantly pay off.

There are a handful of reasons why good credit will tend to always play in your favor, no matter what's happening with interest rates.

Lenders will see you as a lower-risk borrower

Whether interest rates are rising or falling, a high credit score consistently places you in the lowest-risk category in lenders' eyes — which is what they focus on most. It signals that you're more likely to pay back what you borrow on time, and for that lenders are more comfortable offering you credit with better terms.

You're more likely to get approved in a tight credit market

Even if rates are rising and lending conditions tighten, meaning banks and credit card issuers become more cautious about who they approve, borrowers with strong credit scores still generally have an easier time qualifying. In these periods, lenders may require higher credit scores, offer fewer products or approve smaller credit limits. Meanwhile, borrowers with weaker credit may face higher rates, stricter terms or outright denials.

You have more negotiating power

Good credit gives you more flexibility when you want to shop around. Whether you're comparing credit cards or reviewing loan offers, a strong score can help you qualify for better rates and terms, and sometimes even lead to faster approvals.

Weak-credit borrowers tend to be hit first when economy slows

When the economy shows signs of slowing, borrowers with lower credit scores often feel the impact first. They may see interest rates rise faster, credit limits shrink or access to credit dry up altogether, making it harder to manage everyday expenses.

Raising your credit score may feel overwhelming, but small steps can make a big difference over time. Here are some effective ways to boost your score.

Pay your bills on time — every time

Payment history is the biggest factor in your credit score. Even a single missed payment can hurt your score, so it's important to pay all your bills on time. You can also use tools like Experian Boost®, which allow you to add positive payment history from bills like rent and cell phone service to your credit report. To sign up, you'll need at least one active credit account, such as a credit card or personal loan. Keep in mind, not all billing services are eligible for Experian Boost, and the tool isn't required to improve your score, so be sure to read the fine print before enrolling.

Keep your credit card balances low

Try to use less than 30% of your available credit on each card. High balances compared to your credit limits can lower your score, even if you pay off your bills in full each month.

Avoid opening too many new accounts at once

Each new credit application results in a hard inquiry, which can temporarily lower your score. Opening several accounts in a short period may also signal risk to lenders.

Keep old accounts open

The length of your credit history matters. Closing old accounts can shorten your credit history and potentially lower your score, so think twice before shutting down that credit card you've had forever.

Protect your credit with identity theft monitoring

Keeping an eye on your credit report can help you spot errors or signs of identity theft early. Many identity theft services offer free or paid monitoring that alert you if something suspicious happens. For example, Chase Credit Journey provides free identity monitoring for both Chase cardholders and nonmembers, including dark web surveillance, Social Security number tracking and data breach monitoring.

You can also use data removal services like DeleteMe, which work to remove your personal information from data brokers' databases, helping reduce the risk of identity theft.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every credit score article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of credit monitoring products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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