This is the fifth in a series of six articles detailing information every person who wants to take control of their financial future should know.
Obviously, the easiest way to a great credit score is to pay your bills in full and on time. The benefits of a great credit score mean that you will get better offers for credit cards, better financing terms if you want to buy a home, and easier money if you come upon an unexpected “great deal.”
Ann, Bob and the Tale of a Great Credit Score
Here is a look at how all of this could play out in real terms. After thirty years of paying bills on time and living within their means, Ann and Bob didn’t really think they would ever need their great credit score again. They had finished paying off their home and had no intention of moving or changing, but then the housing crisis hit.
Homes, which originally cost over $300,000, were now selling for $150,000, and their kids needed housing. Ann and Bob used their great credit to obtain one new mortgage on their home, buy two homes for their kids for cash, and charge their kids a minimal rent-to-buy amount each month to move into nice places. No way around it, Ann and Bob’s stellar credit score was a game changer! This was an opportunity that Ann and Bob could take advantage of quickly and easily because they had maintained great credit over the years. Within a couple of years, the houses they had purchased had gone up in value over $60,000 each.
When starting out, getting credit is not the easiest thing to do. The upside of a student loan is that when paid every month on time, a student loan is helpful in establishing good credit. Certain banks will offer a credit card when you open up a savings or checking account. Charging and paying off this credit card every month will help you establish your credit. Paying off utility bills on time also helps build your credit. The rub is that individuals may have to take on unnecessary debt merely to show a history of payments on at least three different obligations in order to be considered for a home mortgage.
3 Ways to Establish Your Credit
1) Consistently make student loan payments
2) Consistently make payments on bank offered credit cards
3) Consistently make payments on utility bills in your name
Three Credit Score Entities–Experian, TransUnion and Equifax
Who determines your credit scores (also known as FICO scores)? Three major credit rating agencies, Experian, TransUnion, and Equifax issue credit scores. These scores may differ because these agencies may look at different items when they determine credit score. Your free credit score is available at numerous websites including CreditKarma.com. Some websites also charge you to give you your score.
Credit Scores Demystified According to CreditKarma.com
Constantly Monitor Your Credit Score
Consumers are urged to continuously monitor their credit scores in case errors show up on their credit reports. These errors may mean that you cannot a necessary loan or obtain favorable financing terms for credit cards or other credit vehicles. You can learn how to dispute errors on your credit report at https://www.creditkarma.com/article/dispute-credit-report-errors.
Getting better credit scores include paying your bills in full and on time, using a smaller percentage of your credit, and not applying for additional credit cards (because this can be a sign that you intend to take on additional debt).
Keys to Boosting Your Credit Scores
1) Pay bills on time
2) Pay bills in full
3) Use a smaller percentage of your credit
4) Don’t apply for any additional credit cards
The Implications of Credit Scores
The payoff of a good credit score is not only more money if you need it but also the respect which comes from all financial institutions you come in contact with. There is no feeling quite like inquiring about a line of credit and the bank representative glowing with respect when your credit score comes back above 800. The reverse can be insulting and nagging calls from bill collectors, being turned down for a job because your potential employer has checked your credit score, and the continual stress associated with owing money.
(Illustration by David Darchicourt)