The other thing that is scary is that studies indicate that a majority of consumer credit reports contain errors. Yes, these millions of computerized records which affect things like whether you are approved for a mortgage or the interest rate that you qualify for on a new can loan, contain errors. Taking that lax of an attitude towards something as important as this is akin to driving your car without oil and then wondering why the engine blew up.
The things that blows me away is that most people are not aware of this, nor do they ever take the time to check their credit score or their credit report, nor do they take the time to correct the errors that are contained in it.
If you want to get really serious about your credit score and take steps to raise it, there are a variety of methods that can assist with this goal. Your first step in this process if of course to get a copy of your credit report, identify any errors that are in it (and chances are excellent that there ARE errors in it), and follow the accepted and effective methods to get those errors corrected and removed.
The other benefit of raising your credit score is that you will then be in a better financial position the next time that you finance a major purchase. For an example, a better credit score can make the difference between being qualified for a 12% loan on your next new car or a 6% interest rate. Over the course of a typical new can loan (4 years, 5 years, maybe even 6 years), this savings based on the interest rate alone can be several thousand dollars. Applying that same logic to a much larger purchase, say a home mortgage, your savings with a better interest rate, which may qualify for if you have a very good credit score, could amount to many tens of thousands of dollars.
Your credit score is a simple number that reflects many different things. A number in the 600's is probably average for most people. A score in the 700's is good and a number above 800 is not unheard of but designates an excellent credit score. If your credit score number is below 500, it is something that you should take steps to improve, and since this process takes time, it is something you should start TODAY.
One of the more prevalent myths that most people believe about their credit score is that it is good simply because they pay their bills on time. While being very conscious to pay your bills on time is good, that fact in and of itself is not the entire representation of your credit score. Do you know what your ?debt to credit ratio? is? This ratio is a critical component is determining your overall credit score.
For example, let's say for the sake of round numbers that you have $10,000 in total unsecured credit amongst all your credit cards, and you are $5,000 in debt, your ?debt to credit ratio? is 50%. That ratio it what it is, and has virtually no bearing on whether or not you pay your bills on time. Remember that most lenders make money by charging you interest, and a potential new lender is going to be looking at how much money he can make from you if he approves your loan request or new credit card, because they consider how ?profitable? you are going to be to them.
One way to improve your ?debt to credit? ratio is to consider one of those specialized cards that are good only for one company's catalog merchandise, frequently known as a Sub-Prime Merchandise Card. You've seen the ads on TV and in the mail ? ?you can get $5,000 credit, guaranteed, you cannot be turned down?, etc. Investigate these carefully, because some of them are truly legitimate and can be a tremendous tool for you. Let's look at how this can work.
You buy $2,000 worth of merchandise from your account on this Sub-Prime Merchandise Card. Your deposit is $300 so you then finance $1700 on their merchandise card and make payments. Does this sound like a scam? Most people would answer ?yes? and if that is your thought also, you are missing the point in a big way.
With a valid and legitimate Sub-Prime Merchandise Card, your credit line will be reported to at least one of the major credit bureau. This means if you get a $5,000 card and you finance $500, on your credit report it will look like any other credit card. But look at the three extremely important things this does for you:
1. This will increase your current "High Credit Limit" by $5,000 almost overnight since the account looks like any other unsecured revolving account.
2. By carrying a small outstanding balance, it will have a POSITIVE impact on your credit report by building and showing potential lenders your credit worthiness.
3. With a good payment history on this account, you are virtually guaranteed to receive "legitimate" pre-approved credit offers in the future due to other lenders renting your name and data from the credit bureaus.
There are many more very legitimate and legal ways to improve your credit score, and the effort you put forth to do so will pay itself back in tremendous dividends to you over the years. I would encourage you to make this a priority and take regular and consistent action on this today. It's not difficult but does require consistent action and follow up on your part.
If you didn't know this already, having a good credit score is more important than having a lot of cash. Putting aside the insanely rich, most people just don't have that much cash laying around. Some of us have only have a few dollars left over after expenses. Some of us manage to save a few thousand dollars. But unless you have several hundred thousand dollars in cash, you're going to need a good credit score to get around.
I know from personal experience that having a bad credit score prevented me from getting into apartment after my divorce. I argued with the property manager briefly saying "But I can pay you 2 years of rent up front! Why won't you let me live here?" She explained that by law they are only allowed to accept three months rent plus the first and last months rent. However, my application to live in the apartment cannot be approved because of my bad credit! You can imagine my frustration. But I just wanted to share with you one example why having a good credit score is more important.
Your credit score is calculated using a something called FICO. It was created by Fair, Isaac Company. It basically takes into account how much debt you have and your payment history over time. If you've been making regular on time payments for years, then you probably have a great credit score. If you've been late recently, and I mean in the last 6 months, then your credit score is going to drop. And if you been making late payments over and over in the last 6 months to 2 years, your credit score is going to be very poor. If you have a lot of relative debt, which means all your credit cards are maxed out, then that will lower your credit score even more.
So what can you do if you have a low credit score? I'm going to give you a couple of strategies that attack the to biggest factors affecting your credit score.
1.If you have old accounts that are already paid off, don't close them! Remember, you want to keep your available credit as high as possible for as long as possible. Having more credit available versus your debt improves your credit score.
2.If you have current credit cards with a balance, don't pay them off right away. For example: You have a $3000 credit card. Every month you charge about $2000 to it, but you pay it off before the end of the month. Although this won't hurt your credit score, it won't help it either. You need to carry some portion of that balance over to the next month, even if it's just $100. Remember regular payments over time improves your score.
Some other things to consider. If you can only make one payment, pay your mortgage first! Followed by installment loans like your car payment, then your credit cards. When you have multiple payments of the same kind, (i.e. two car payments, five credit card payments), pay the one with the highest interest rate first. Even though nothing feels better paying off a small balance and seeing $0 due, you will save more money in the long run paying off the higher interest rate balances sooner rather than later. This in turn will leave you more money to pay off the small balances.
All these strategies and tips will greatly improve your credit score over time. But there are ways to improve your score much more quickly. Get a copy of your credit report and look for errors. You're allowed to see your credit report free once a year from each of the three major credit bureaus: experian.com, Equifax.com, and transunion.com. If there are any errors, there are simple ways to have them removed. Sometimes it's as simple as calling the creditor that reported the bad information. Sometimes you just need to write a letter challenging the error. Either way, removing errors in your credit report is the fastest way to improving your credit score.
Both Jon A & Robert Rogers are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Jon A has sinced written about articles on various topics from Home, Sports Car and Acid Reflux. Jon is a computer engineer who maintains web sites on a variety of topics based on his knowledge and experience. You can read more about Credit Scores at his web site at. Jon A's top article generates over 40500 views. to your Favourites.
Robert Rogers has sinced written about articles on various topics from Green Tea, Video Games and Auto Insurance. Robert Rogers is a writer in the Washington DC area. For more information on how to improve your credit score visit. Robert Rogers's top article generates over 5400 views. to your Favourites.