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While your credit score may reside in the hundreds, the amount of money you will save or lose with that score, will vary by thousands or perhaps even tens of thousands of dollars.
A credit score is often looked at as the gateway number that will decide whether or not you’ll be approved for a credit card or a loan. That’s true to an extent, but your credit score also plays a major role in your interest rate once you’ve been approved for the loan. Just a couple percentage points can mean the difference between saving or losing hundreds of dollars a year when you pay on your credit card.
Now let’s apply that same principal to a car loan or a home loan. A few percentage points on a home loan can mean tens of thousands of dollars that will either flow in or out of your bank account. So if you’re looking to save money in the short term and the long term, fixing your credit score is a great place to start.
WHO DETERMINES YOUR CREDIT SCORE?
Your credit score is calculated by The Big 3. Who are they? The three major credit reporting agencies:
These credit reporting agencies use a number of factors to determine your credit score but the process isn’t as straight forward as you may think. It’s based on more than if your bills have been paid on time or not.
For example, you may always make your credit card payments on time, but if you’ve never had a large loan before, this lack of credit history may negatively affect your chances of getting approved for a mortgage or auto loan. The banks may see you as a credit risk and charge you higher interest rates even if they do agree to approve your loan.
Not tracking your credit score can cost you….
The tricky part about interest rates is that most people get so caught up in the routine of paying bills, they actually forget what those interest rates are. So even if their credit score improves, and they qualify for a lower rate, they may continue to pay that higher interest rate for months or even years. Simply forgetting to do regular check ups on your credit score and interest rates can cost you thousands of dollars if you’re not careful.
If you want an easy way to track your credit score, sign up for Credit Karma. It gives you a good estimate of you credit score and it alerts you to any major changes in your score; good or bad.
The Never Ending Credit Card Bill
When people constantly make credit card payments on time, but don’t see their balance decrease by much, they can begin to feel frustrated and overwhelmed. This can lead to people eventually giving up and even defaulting on the loan, and that only makes everything worse; including their credit score. The best way to prevent this from happening to you is to make sure you have a clear plan to fix your credit score.
Let’s Start Fixing That Credit Score
So, first things first. You’re entitled to receive one free credit report per year. This is much different than what you will receive from Credit Karma; this is a full detailed credit report you can receive at no charge from one or all (recommended) of the major credit reporting agencies. Take advantage of this and make sure you stay up to date on your credit situation.
Not only will you be aware of where you stand credit wise, you can also check to make sure no loans or credit cards have been taken out in your name without you knowing about it. Identify theft is becoming more and more common. The earlier you catch the issue, the easier it is to fix it.
Things You Can Start Doing Right Now
Here are a few tips to increase your credit score, so that you’ll have lower interest rates, and more money in your pocket:
PAY YOUR BILLS ON TIME
If you do nothing else, this will help maintain and possibly increase your credit score.
PAY OFF YOUR DEBT
Have you ever heard of this so called credit boosting trick before? “Leave a balance on your credit card every month, it’ll help boost your credit.” This is completely not true. If you’re able to pay off your debt, do so. This will save you money and improve your credit score in the short term and the long term.
KEEP YOUR BALANCES LOW
Just because you pay your credit card bill every month, doesn’t mean your credit score will automatically improve. If you carry a high balance, this may be interpreted negatively by the credit reporting agencies and cause your score to stay at a stand still or even drop.
APPLY FOR CREDIT ONLY WHEN NECESSARY
If you don’t need a new credit card, don’t apply for one. The last thing you need is potential debt lingering around you every day. Every time you apply for credit, this can lower your credit score. Keep applications for new debt to an absolute minimum.
CHALLENGE AND DISPUTE ANY INACCURACIES
Make sure you keep a watchful eye on your credit report. Any loans or credit cards you didn’t open should be addressed immediately. The faster you start the dispute process, the easier it will be for you to remedy the situation.
How Do I Check My Credit Score?
Easy. Just click the link below to go to the Federal Trade Commission website and start the process of receiving your free credit report from all three agencies.
Also keep in mind you can sign up with websites like Creditkarma.com that will give you regular updates on your credit score. It is not as detailed as your full credit report but it will inform you of any changes in your score, positive or negative.
Have you ever heard of saving cash by spending it? Find out how to do it every day with this simple method.