Puzzled by Credit Scores?
Credit scores are confusing to understand, and hard to control. How many of you know your credit score? Okay, how many of you know how it can affect your everyday life? Sadly, I know both, and I really want to improve mine. I have spent some time wading through the information and collected some facts and helpful steps to follow in your quest for a better score.
How Does Credit Scoring Affect Everyday Life?
You might be surprised at some of the ways you are affected by your credit score. Obviously, credit cards and loans are harder to get if you have a low score, but it doesn’t stop there. Based on where you fall in the range of numbers, you are going to pay a different rate on your borrowing. Sadly, a lower score means a higher rate.
Insurance companies often base your rate on your credit as well; your car insurance can go up if your score goes down. Renting a home or apartment is often more difficult with a low score, too. Landlords will pull your report to make sure you pay your bills on time, and to get a picture of your debt load. Utility companies will also check, and base your deposit requirement on your score.
And lastly, many employers will look at your credit report as part of the hiring process. In many industries, a bad score can make a job harder to find. These are some compelling reasons to improve your financial health, aren’t they?
It Starts with Knowing Your Number
I bet lots of you know Jenny’s phone number is 867-5309, but have no idea what your credit score is. I have mentioned before that you can get free credit reports yearly from each credit agency, and those will have your score. There are other ways to get the information more frequently, however. I am a big fan of Credit Karma because it is free; the service is paid for by their advertising revenue. I get a monthly email reminding me to check my report, and I can see changes very quickly that way.
Another way is to sign up for a paid credit monitoring service; some banks offer a plan. Often a basic report is free, and then there is an option to pay for a more detailed plan. Checking your credit monthly this way has the advantage of also helping you to catch any fraud quickly.
If you find something fraudulent, do you know how to handle it? LENDedu has put together a tutorial on disputing items on your credit report. It includes links to the 3 credit reporting agancies, and links to the government sites that explain your rights in detail.
Is Your Score in Need of Improvement?
The simple answer to this is to pay down your debt. Easier said than done, right? It probably took you quite a bit of time to get it down; it won’t be instant to get back up. Start by not using your cards anymore. Cut them up, freeze them in a big block of ice, hide them, or do whatever helps you to stop. It’s also probably a good idea to remove them from shopping sites as saved payments. Taking an extra minute or two to find and enter your information may help with rethinking a purchase.
Don’t close all your cards, at least not all at once. One of the things that is tracked on your credit report is available credit or credit utilization. So, if you pay down a card and it remains open, your utilization will go down. Another score factor is the age of your credit so that an older account will carry more weight than a new one. I have a Sears account that I opened in 1997 that I have kept active for that very reason.
GreenPath Financial has a great page full of links to help you figure out the credit score puzzle. I found the credit scoring example particularly helpful to see the impact of different events on scores.
Save Money Every Month
A great way to find extra money to pay down debt is to lower your monthly bills. BillCutterz is ready to do the hard work of reducing what you pay monthly. It only takes a few minutes to sign up, and we’ll get to work on your cable/satellite, phone, and internet bills, among others, to save you money and time spent on the phone with providers.
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