Many consumers are unaware just how much they are affected by their credit score.
Your everyday actions can have lasting negative ramifications on your credit history. Paying a bill late, maxing out your credit card and even paying a debt collector may lower your credit score.
Some consumers don’t see their credit health as a priority and only pay attention when it’s time for a big purchase — that can be a mistake.
The most important consequence of a credit score is that creditors base their decisions to grant credit or deny credit on that 3-digit number. A healthy credit score has many benefits:
- Approved for mortgage, car or personal loan
- Qualify for excellent credit card deals
- Improve chances of renting an apartment
- Receive better car insurance rates
- Lock in utility services
- Employment Opportunities
Credit approval based on lower scores will have a higher interest rate and less favorable terms than a consumer with a high credit score.
Top 5 Facts You Should Know About Your Credit Score
1. Consumer credit counseling may not improve scores
Getting help from a consumer credit counselor does not mean your credit score will improve. Consumer credit counselors may be able to negotiate a lower monthly payment with your creditors; however, you may still be assessed the difference if the lower payment does not meet the original obligation in the credit agreement.
Many times consumers are surprised when they discover the difference in the lower payment amount negotiated and the original amount due is reported as late on a credit report. Late payments are a serious credit score killer. If you want to improve your credit score make sure the balance as well as the payment is re-negotiated.
2. Credit scores can change frequently
Consumers are often advised to check their credit on a yearly basis. This advice can be detrimental to your personal finances. With the onslaught of identity theft, fraud and the widespread use of credit history in determining anything from renting an apartment to getting a cell phone, consumers should monitor your credit score often.
The law entitles you to a free credit report from the three major bureaus, as well as lesser known consumer reporting agencies each year. During the COVID-19 pandemic, you can get FREE WEEKLY credit reports. To get your free credit report visit www.annualcreditreport.com
3. A savings account is great but it will not help scores
Saving money is an absolute must for your personal financial health, but it will not raise your credit score. If you are on a good savings plan continue to save money but also work on your credit score by keeping your credit card balances to less than 10% of your available credit limit.
Many consumers choose to max out one particular credit card, perhaps the one with the highest credit limit or lowest interest rate. This is not a good idea. Consider transferring part of a high balance to a credit card with the smaller balance, while keeping all of your balances to less than 10% of your available credit limits. Consider using some of your savings to pay down on the higher balance credit card.
4. Paying a collection account will not increase credit scores
Paying a debt collector or creditor’s collection department will not raise your credit score. The reason being is the more recent the activity, the more weight it holds in the scoring system. Paying off collection accounts, regardless of the age of the collection account, registers as recent activity.
Should you decide to pay the account, negotiate a deletion from your credit report as this action may actually increase your credit score.
5. Bad credit can be temporary: Credit scores can be improved
A low credit score can be a result of negative credit but it can also be a result of the lack of positive revolving credit in your report. While you should always work on removing negative credit, adding positive credit can give your score a boost. The OpenSky® Secured Visa® Credit Card is a good choice for consumers looking to rebuild with a secured card. It has a low annual fee of $35. You can choose your credit limit from $200 to $3,000 and they report monthly to the three major credit bureaus.
There is no credit check required for this secured credit card. For an unsecured credit card to build credit the First Digital Mastercard® is a good choice because it reports monthly to all three major credit reporting agencies and perfect credit is not required for approval.
Authorized user credit is another way to add positive credit to your reports. Becoming an authorized user on someone’s credit account who has a good payment history will add that good credit account to your credit history. A co-signer on a loan or credit card is another option for adding positive credit as long as you maintain a good payment history.