Why Smart Savers Seek to Build a Better Credit Score
Credit Scores (Photo credit: i am real estate photographer)
A bad credit score can hit your wallet harder than you might know. A poor credit score can be an inconvenience and an embarrassment. It can affect your job prospects, your ability to secure housing, and worse, deny you credit that could help you out of an emergency. You could have to pay a higher security deposit for a cell phone account, as much as five or six hundred dollars more! Many people have become aware that a bad credit score can make it difficult to secure a loan, mortgage, or credit card, but only smart savers realize how much money a healthy credit score can save them. Are you a smart saver?
What is a Healthy Credit Score?
The most common method for calculating a credit score is known as the FICO (Fair Isaac Corporation) model. The three major credit agencies have regularly used this over the years, though in 2013 they are implementing a new system of scoring known as a Vantage Score, again named after the company that developed it. Regardless of what system a creditor consults in their decision making progress, a low score is a low score, and could make your life difficult and more expensive than it needs to be. Both systems have a similar range, from 350-800, and the average credit score falls in the 650-700 range. The credit agencies and lenders consider a score of 700 and above as an indication of a responsible money manager.
How to Improve Your Credit Score and Save $$$
You can take several steps to improve your credit score if it’s below average. One of the simplest ways to boost a sagging credit score is to pay off any outstanding bills, this minimizing your debt. The amount you owe makes up 30% of your credit score, so you can improve it substantially by straightening up those overdue and outstanding accounts.
The responsible use of a credit card is a tried and tested method of raising a credit score. Charging small amounts that you can pay off completely every month will put you in excellent standing with the credit bureaus. Bill payment history makes up 35% of a person’s credit score, so timely payment of all of your bills can raise it substantially in a relatively short period of time. If you can’t pay the entire balance of your credit card off, try to keep it at less than 30% of your card’s limit.
Consumers who don’t qualify for a regular credit card can apply for a secured credit card. You deposit an amount with your bank, and they issue you a card with an equal amount of credit. For instance, if you deposit $1,000, you will receive a card with a limit of $1000. If you follow the same recommended practices as for a normal credit card, maintaining a balance of below 30% of your limit, or paying it off completely whenever you can, you can increase your credit score substantially.
Raising your credit score is not as difficult as you may have thought. In fact many consumers don’t even bother to try because they believe it is too hard. As you can see, that is not true, and with a little time, diligence, and discipline, you can repair a damaged credit rating in no time. Doing so could save you tens of thousands of dollars on a long term mortgage, and keeping healthy financial habits will help you to avoid costly late fees, penalties, and collection costs. A little applied effort will not only raise your credit score, but the balance of your bank account too.
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Category: Credit Score
