You know you need to take care of your money: For good financial health you should spend less than you bring in, know where your money goes and save where you can. You also need to use credit wisely. But having good credit affects more than just your finances. Do you know what is in your credit history and how to improve your credit score?
Your Credit History
As the name indicates, your credit history is a record of when you have owed money and how well you have paid it back. This can include vehicle loans, education loans, utility service and credit cards. Rental history is typically not a part of your credit history.
Your Credit Score
Your credit score is a numerical expression of your credit history. Factors include how much debt you have, how long you have been using credit and whether you have paid back loans in a timely manner. There are different agencies that calculate credit scores; each agency may assign you a different score but the differences should be nominal.
How You Can Improve Your Credit
One of the best and easiest ways to establish good credit is to pay your bills on time. When you first start out and have no credit, a secured credit card can be a good starting point.
As you build credit and obtain more credit cards, use approximately 30% of your available credit. For example, if you have two cards and each has a $500 credit line, your available credit totals $1,000. Charge around $300, split between the cards however you like. To avoid paying interest or fees, pay the balance in full by the due date.
Building or improving your credit score can take six months to a year. As you continue to handle credit responsibly, your score should continue to rise. Check your credit reports at least once a year, to ensure accuracy and gauge your progress.
Why Credit Matters
Why bother improving your credit score? Who looks at your credit history anyway? It turns out that your credit history can have a huge effect on your finances and your future. Here are six areas likely to be influenced by your credit:
Loan Approval
Obviously, lending agencies are more likely to approve you for loans if you have a history of paying them back. They are also interested in seeing on-time payments over the life of a loan.
Interest Rates
Lenders are not only more likely to loan you money if you have good credit, they are also likely to loan that money at a better rate. Because they believe they will have no trouble collecting their money, they are willing to charge you less for the loan. It may not seem like much, but even a one-percent improvement on an interest rate can result in considerable savings over the life of the loan.
Insurance Rates
Lenders are not the only ones who may give you better rates if you have good credit. Insurance companies typically check an applicant’s credit history and use that information as part of their formula for determining vehicle policy rates.
Prospective Employment
Employers often conduct credit checks on prospective employees. Some employers do not want employees with money troubles in a position to handle company funds. In some cases, your credit check can affect your chances of being hired for any position. Employers may believe that your credit history is a reflection of your responsibility and ability to make good decisions.
However, there is hope for job seekers with an unfavorable credit history. Federal law allows employers to include your credit history in their hiring decisions, but you may live in a state that limits the practice.
Housing Rental
While your rental history does not show up on your credit report, many landlords check your credit as part of the rental application process. If you have rented in the past, a future landlord is likely to weigh your rental history more heavily than your credit score. However, if you have never rented before, your credit report may exert substantial influence on whether a property manager approves your application.
Some aspects of your credit history may be more important than others. Red flags include repossessed vehicles and credit card accounts that have been written off. Rental firms may not reject your application, but they may rent to you only with a co-signer or an additional deposit. They may also charge extra monthly rent.
Security Deposits
Property management firms are not the only companies that charge security deposits. You may need to put money down with the power company, cable television and internet provider. Cell phone companies may also require a deposit to establish service. Such providers commonly conduct credit checks as part of determining the amount of the deposit. When you are building credit, or have poor credit, you are likely to need a sizable deposit. Once you have established excellent credit, utility companies may waive the deposit completely.
