Credit Lessons and Long-Term Effects
Your credit score can have a long-term affect on the options available to you as a consumer. Because this rating can have such a big impact, it's important to do all that you can to keep your credit score as high as possible. To help you with this important goal, we've gathered some tips and strategies below.
What Does My Credit Score Affect?
Even with knowing that your credit score is important, you may be surprised at how big an impact that score can have on your life. Here are some common areas that will often consider your credit rating:
- Mortgages
Just getting approved for a mortgage loan may be challenging. If you are approved, your credit score plays a large part in determining your interest rates and monthly payments. Those with higher credit ratings will usually get lower monthly payments and interest rates. Because lenders view low credit scores as an increased risk, they assign these consumers higher interest rates and payments.
- Credit cards
Your credit score directly determines your credit card interest rates and credit limits. Consumers with higher credit scores will receive lower interest rates and high credit limits.
- Auto loans
When leasing or purchasing a car, your credit score can affect the terms of your auto loan agreement with your auto dealer. Having a high credit score can keep the interest rate on your monthly payments low and can also positively affect your closing terms.
- Insurance rates
While most states have begun regulating how much insurance companies can factor in your credit score when determining your risk factors, credit scores definitely affect your rates.
- Getting a job
Many employers require past financial information during the hiring process to make sure their potential employees are stable.
Find Your Credit Score
There are a variety of different businesses that can help you find your credit score. Several of them are online. If you decide to use a service to find your credit score, make sure you research them all and make the best choice for yourself. Also, be aware of any hidden fees or subscription services that the company may charge.
When reporting your credit score, most organizations give you the results from the three most popular credit bureaus: Experian, Equifax and TransUnion. Each of these bureaus uses different criteria to figure out your score, so it's possible that you will have a different credit score for each one.
The average credit score is around 680. If your score is higher than that, you will have an easier time negotiating lower interest rates and higher credit limits with your lenders. You will also have an easier time being accepted for bank loans and credit cards. The higher your credit score, the better.
Start Building Up Your Credit Score.
Take action now to ensure a strong credit rating for yourself. Here are some helpful tips on how to build your credit score:
- Pay your bills on time
Your recent payment history is one of the biggest factors of your credit score. By staying on top of your current bills and paying them off on time, you can take a big step in building better credit.
- Resolve your outstanding debt
Even if your payment history has been rocky in the past, it's good to correct those rough spots as soon as possible to re-establish good financial relationships. Lenders like to see that you are capable of overcoming past problems and are committed to upholding your financial agreements. If you close a service account, make sure that you pay off any outstanding debt.
- Maintain your credit cards carefully
Remember that it's easy to run up debt on a credit card. Stay vigilant with your credit card purchases. Avoid making purchases on your credit card if you are uncertain when you will have the income to pay them off. Also, remember that lenders typically like to see consumers use 25% of their available credit limit. Maxing out your credit cards will hurt your credit rating.
- Avoid opening too many new credit cards
A larger number of credit cards are usually more difficult to manage. Also, each time you open a credit card, that credit agency will check your credit report, which will then lower your credit score.
References
If you're interested in learning more about credit scores and credit building strategies, you may want to consult the following resources:
- Experian.com, Equifax.com, and TransUnion.com
These are the three major credit bureaus that generate the most widely recognized credit scores.
- myFico.com
MyFico offers a handy Credit Education section that can provide all the ins and outs of good credit strategy.
- HowStuffWorks.com
This website has a variety of useful information, but in particular, their Personal Finance area in their Money section provides a lot of useful advice for handling money.
- CreditLearningCenter.com
This user-friendly site provides useful credit advice, as well as information about credit scores and reports.
- CNNMoney.com
The Personal Finance section of CNN's Money website can keep you up to date on any changes in the financial market while also offering a lot of personal financial advice.
