OK… so you don’t have a horrible credit score, but it isn’t anything to brag to your friends about either. Many people get complacent when it comes to their credit because (in their minds) it isn’t directly affecting their day-to-day lives. If you’re comfortable financially and your bills are being paid in-full each month, the last thing you want to think about is your credit. But being complacent could lead to major headaches in the future, and it may be costing you more than you think – RIGHT NOW.
How Does Your Credit Score Stack-Up?
The average American has a FICO score around 720, with 60% of people falling between the 650 and 799 range. FICO scores vary from 300 to 850 – the higher the score the better. If your credit score is above 750, then you’re in excellent shape and you should have no problems – now or in the future. Auto loans, mortgages, credit cards, business and emergency financing are all within your reach, and you’ll get the best interest interest rates available. As long as your credit score is over 700, your credit is in good shape and you’ll have very few limitations.
It’s when your credit score drops below 700 that you creep into fair or “so-so” credit range. Although your credit score isn’t considered bad at this level, you’ll receive more scrutiny by lenders and banks and the terms of your accounts will be much less favorable. Expect to provide more documentation, receive lower limits, pay higher interest rates and possibly incur extra fees.
Your Credit Score May be Affecting You Now!
So you don’t need additional credit right now and there are no big financial plans in the near future – what’s the big deal?Â Even if you can easily pay your bills each month and you have no need for new credit now, it’s very likely you’re paying more for your existing financial obligations due to your less than stellar credit history. Think about how much money you’re wasting on interest charges and other fees due to your weak credit rating. Here’s a simple example:
Let’s assume your current credit card interest rate is 17.99% (a moderate rate for someone with a fair credit history) and you have a balance of $5000:
- CURENT CREDIT CARD
$5000 x 17.99% = $899.50 per year in interest charges
With good to excellent credit, there are numerous low interest credit cards with rates below 10%. Let’s assume you were approved for 10.99% with the same balance:
- NEW CREDIT CARD
$5000 x 10.99% = $549.50 per year in interest charges
In this simple example, you could save $350 per year in interest charges from having a more favorable credit card – not to mention any fees that might be associated with a less favorable offer. Now, add in additional cards and much bigger savings on auto loans and possibly a mortgage, and the savings produced by a higher credit score could be substantial!
Improve your Credit and Raise Your Credit Score
If your credit could use a lift, there are numerous ways to build and improve your credit score. Here are the simple suggestions to get you moving in the right direction:
- Evaluate your credit report – Since numerous factors can affect your credit score, it’s important to make sure your credit report is accurate and up-to-date. If there are any errors, such as late payments or unpaid balances, contact the credit bureau to dispute the errors and correct them immediately. If you have unpaid items in collections, consider disputing them or paying them off. Free credit reports can be obtained at: www.annualcreditreport.com
- Always pay your bills on-time – Your payment history is one of the biggest factors affecting your credit score. Even one late payment can have long-term, negative consequences. Make sure you’re on-time every month, and pay at least the minimum payment.
- Lower your debt-to-available credit ratio – If you have maxed out credit cards, it will negatively impact your credit score. You should never exceed 50% of your available credit, since it will appear that you’re desperate or don’t have a good handle on your finances. To reduce debt to available credit ratio, either pay down your balances, request a credit limit increase, or consider applying for a new credit card to increase your available credit.
- Limit credit inquiries and keep old accounts open – Every time you apply for new credit, it has a slightly negative, short-term impact. Also, keeping old accounts open (even if you’re not using them) can positively impact your credit score.
* For even more tips to improve your credit score, CLICK HERE
Having a good credit score will not only improve your future financial obligations, but it could be assisting you right now. Improving your credit score should be a top priority – even if your issues are minor and you have a decent credit rating. The higher your credit score, the less you’ll pay in interest charges and other fees. The savings can add up quick!