Why your credit score matters
Excellent credit can help you get great deals on credit cards, loans, insurance, apartments, and cell phone plans, among other things. Poor grades may force you to forgo opportunities or pay more.
Over the course of your life, having good or exceptional credit can result in significant savings. For example, you could save:
- Based on interest rates for a 30-year fixed-rate loan in July 2023, NerdWallet calculated that a person with a credit score of 750 or above would pay $86,065 in interest on a $350,000 mortgage, while someone with a score of 630–689 would pay $689.
- With a score of 720 or higher, the interest on a five-year, $41,000 car loan would be $3,251, as opposed to a score of 660–689 based on FICO calculations using rates from July 2023.
- Based on anonymized offer data from NerdWallets lender marketplace, a borrower scoring 720 or above would pay $885 in interest on a $10,000 three-year personal loan, while a borrower scoring 630–689 would pay $689.
Given how important credit scores have become to our financial lives, it’s important to monitor yours and comprehend how your actions impact the numbers. Regardless of your age or income, you can establish, protect, and benefit from excellent credit.
How credit scores work
A brief overview: Most people have multiple scores, and they fluctuate constantly.
The scoring formula and which of the three credit bureaus provided the data used to create the score also affect your scores differently. Keep an eye on the same kind of score from the same bureau if you wish to follow the evolution of your credit score over time.
It’s not necessary to pay for a score; your bank or credit card issuer may be able to provide you with a free FICO or VantageScore. Additionally, financial websites like NerdWallet provide a free credit score (usually VantageScore 3). 0, which measures the same behaviors that a FICO does.
Build credit without debt
Due to non-use of credit or insufficient recent use to establish credit, millions of people lack credit scores. Two ways to build credit include:
- Apply for a credit-builder loan, where the funds are deposited into a savings account or certificate of deposit that you can access upon fulfilling 12 consecutive monthly payments. Credit-builder loans are provided by a number of credit unions, community development financial organizations, and online lender Self Lender.
- It also helps to establish credit to apply for a secured credit card, which provides you with a line of credit equal to the amount you deposit with the issuing bank.
After obtaining your score, you can use a credit score simulator to determine what actions could improve or lower it.
Grow credit with good habits
- Increasing your scores requires timely bill payment. Nothing counts more.
- It’s also crucial to use your credit accounts sparingly but consistently. Make sure you are aware of your credit limit on each card, and only charge up to 30% of that amount.
- Pay balances in full if you can. If raising your scores is your goal, there’s no need to carry debt. If you do have debt, make every effort to pay it off as soon as you can.
- Avoid closing accounts if you’re trying to improve your credit. You can close one or two accounts without suffering too much damage once your scores are high—roughly 760—but you should try to keep your highest-limit credit cards open.
Maintain and defend your scores
Once you get good scores—generally 690 or above—you have a lot to lose.
One late payment can deduct more than 100 points from your score. To avoid making a mistake, think about setting up autopay for all of your credit accounts.
Additionally, a judgment from a lawsuit or collection account may lower your credit.
Since identity theft can severely damage credit scores, it is wise to keep an eye on your credit report. Through NerdWallet, you can obtain free credit report information that is updated every week. Additionally, you can use AnnualCreditReport to get free weekly reports from each of the three major credit bureaus. com.
Take advantage of your good credit
When your scores are close to 700, you are viewed as a high risk candidate. When they’re over 760, you’re golden. Expect the best terms and rates available from lenders as they will be vying for your business.
Additionally, think twice about your auto insurance, particularly if your credit has significantly improved since the establishment of your policy. Ask your current insurance company to rerun your rates because it might not have checked your credit at renewal. It’s a good time to shop around as well.
With all of the money you save, you can move closer to achieving crucial financial objectives like increasing your emergency fund, paying off debt more quickly, and saving for retirement.
That’s the real power of great credit scores. You will now have options to advance rather than relying solely on loans, overspending, and attempting to make ends meet.
The Associated Press originally published this article, which was written by NerdWallet.
FAQ
Why is it important to get a credit score?
Lenders use a credit score, which is typically a three-digit figure, to determine whether to grant you a mortgage, credit card, or other line of credit as well as the interest rate you will pay on it. The score represents the lender’s assessment of you at the time of your application as a credit risk.
Why is it important to know your credit score?
You can gain a better understanding of your current credit situation by looking up your credit history and credit scores. Checking your credit reports on a regular basis can increase your awareness of potential lender disclosures. Verifying your credit reports can also assist you in identifying any missing or incorrect information.
What is credit and why is it important?
This is a numerical indicator of how reliable you are as a borrower. Your credit score is a factor that lenders consider when deciding whether to lend you money and, frequently, what interest rate you will pay.
Read More :
https://www.nerdwallet.com/article/finance/great-credit-powerful-tool
https://www.finra.org/investors/personal-finance/how-your-credit-score-impacts-your-financial-future