If there was ever a moment to pay attention to your credit score, this is it. The financial crisis caused by COVID-19 has had repercussions on practically everyone’s finances in the United States, regardless of whether or not your job is in jeopardy. By monitoring your credit score, you may ensure that you are not being punished in areas where you are entitled to protection by federal stimulus law.
Your credit score may be only a number, but those three numbers have a significant impact on many aspects of your daily life. Your credit score will follow you everywhere you go, whether you want to purchase a car, acquire a job, or even rent an apartment. Having good credit is useful in many ways, but having low credit can cost you money in unexpected ways.
Why Is Your Credit Score Important?
Your credit score is used by lenders to assess your creditworthiness. Your credit score affects whether or not you are authorised for credit cards, loans, mortgages, and auto loans, as well as the interest rate and terms that lenders may assign you if you are approved.
When you apply for a new apartment or a new policy, insurance companies, landlords, and employers may all check your credit score. In these circumstances, a solid credit score indicates your general dependability and accountability.
Credit Scores and How They Work
The two most common credit rating systems are FICO and VantageScore. These firms compute your credit score based on information from your credit report, which is given by the three credit bureaus – Equifax, Experian, and TransUnion. As a result, your credit score will fluctuate between scoring models and versions. Lenders determine which credit scores to use when establishing your creditworthiness, and certain ratings may be industry or loan type specific.
In general, your credit score is determined by five major factors: payment history, sums outstanding, age of credit history, credit mix, and current activity. Your payment history and outstanding amounts have the greatest influence on your FICO credit score.
How to Build Credit Without Borrowing Money
Borrowing money through an instalment loan, such as a student loan or mortgage, and repaying it over time helps establish credit, but it is not your only choice. Taking on high-interest credit card debt amounts is also not the most effective strategy.
Instead, keeping a low credit usage ratio and paying off your credit cards on time and in full each month is one of the greatest methods to establish credit. Not only will this help you develop credit, but it will also save you money on interest.
You may also utilise Experian Boost to record unconventional periodic payments to credit bureaus, such as utilities, rent, and even your Netflix subscription.
Keeping and Protecting Your Credit Score
Maintain and protect your credit score by checking your credit report on a regular basis for errors or probable fraud.
You are entitled to a copy of your credit report from each of the three credit agencies once a year under the Fair Credit Reporting Act, which you may view at AnnualCreditReport.com. You may access free weekly online credit reports from all three credit agencies through the site from now until April 2021.
You may also utilise a credit monitoring service to keep track of your credit automatically (usually for a fee).
Checking your credit report on a regular basis helps avoid identity theft in addition to spotting inaccuracies. Unrecognized accounts, illegal charges, or strange enquiries are all potential indicators of identity theft that should be detected — and corrected — as soon as possible.
Advantages of Having Good Credit
What is the best approach to receiving a low-interest vehicle loan? Having good credit, you guessed it. According to myFICO statistics, the typical monthly vehicle loan payment for a person with a high credit score (720-850) is $360 per month at 3.88% APR. Someone with bad credit (590-619) will spend $444 per month for an identical automobile, with a 14.68% interest rate. The high-credit consumer will pay $1,300 in total interest, compared to $5,320 for the low-credit customer.
Mortgage approval and interest rate reduction
Mortgage lenders will use your credit not only to calculate interest rates but also to determine how much of a loan they will grant you in the first place. You may purchase a home more easily if you have good credit.
Applications for rental
Landlords consider a variety of things when determining if you’d be a decent renter, including proof of appropriate income and references from previous landlords. However, some may elect to evaluate your credit as well. Credit scores are an excellent measure of your general financial responsibility and the possibility that you will pay your rent on time.
Credit card acceptance and lower interest rates
Lenders are more likely to grant bigger credit card limits at reduced interest rates if you have strong credit. Not only will you pay less interest on whatever debt you carry, but your credit score will be less impacted as a result of a lower total credit usage ratio.
Approval of a business loan with lower interest rates
You may believe that your personal and corporate credit are distinct, but this is not always the case. Small company entrepreneurs and single proprietors sometimes must rely on their personal credit history to get business financing.
Depending on the position you’re looking for, some companies will retrieve your credit report and use it to assist them to decide whether or not to hire you. They will require your permission to do so.
Power in negotiations
Even people with high credit might face financial difficulties owing to situations beyond their control. If you lose your job but have a good credit history, your lenders may be more ready to modify the conditions of your loans, including decreasing interest rates to cut payments.
Frequently Asked Questions
What exactly is a credit report?
Your credit report is a record of your credit history and activities. It contains the names of the firms that have provided you with credit and/or loans, as well as your credit limits, loan amounts, and payment histories. Consider it your financial résumé; it notifies potential lenders about your financial health.
What should my credit report contain?
Visit our interactive tool to learn how to read your credit report. If you feel any of the information on your credit report is incorrect, you can file a dispute online.
What exactly is the distinction between a credit report and a credit score?
A credit report contains a record of your credit history. A credit score is a number that indicates what is on a credit report and ranges between 300 and 850. There are several sorts of credit ratings, and it is common to have more than one. Credit scores are calculated differently by lenders and credit reporting agencies, and the number you see may not be the score used by a specific lender.
Will reviewing my credit report have a negative impact on my credit score?
Because it is considered a soft query, checking your personal credit report will not harm your score. A soft inquiry is a more routine check that has no effect on your credit score and is usually only visible to you.
What has the greatest influence on my credit score?
Payment history is the most essential aspect in establishing your credit scores since it demonstrates how you’ve managed your money, including any late payments. Your credit history is also crucial since it shows how long you’ve been managing your accounts when your most recent payments were made, and any recent charges.
How long will bad information on my credit report remain?
Typically, the negative information on your credit record is removed seven years after the initial account is delinquent. Bankruptcy information can be on your report for up to ten years from the date it was filed, although this might vary based on the kind of bankruptcy.
Positive information can stay on your report for up to ten years after the last action on the account. This information refers to instalment accounts, such as mortgages and vehicle loans, which have fixed conditions on the number of years for payback. Your favourable history on revolving accounts, like as credit cards, will remain on your report for as long as the account is active.