With so much emphasis placed on your credit score, you might be wondering what making your payments on time and having low debt actually entail. For those who are curious about credit scores, here are a few benefits if you happen to have a high one.
You Can Negotiate Lower Loan Rates
If you have a low credit score, you’ll often be in the position of having to expect favors from your lenders and you won’t necessarily have the ability to ask for much flexibility. Fortunately, for those with good credit, you may actually be able to negotiate a lower interest rate on any loans, since your credit rating demonstrates a history of regularly paying your debts. While there are no assurances that high credit will ensure a successful negotiation, you’ll definitely be in a position where you can ask for what you want, since you’re less of a liability to lenders.
It Increases Your Chances of Loan Application Approval
Whether you’re looking to buy a house or you’re planning on going back to school, applying for a loan might be something that you’re planning on doing in the future. While a low credit score and a poor credit history can nearly ensure that your loan application will be declined, a high credit score can provide you with a significantly better chance of being approved for a loan. While other factors are taken into account before a loan request is approved, good credit will definitely improve your chances of application success.
Your Landlord Will Approve of You
As landlords often rely on credit checks to see if a future tenant is reliable, a bad credit score can definitely nix your ability to find an apartment or purchase a house. While there are landlords who will overlook or not check this detail for the sake of having a tenant, it certainly makes it easier to have a reliable landlord who wants a reliable tenant in return. It’s also worth mentioning that if you’re looking to purchase a home down the line, high credit will likely ensure a lower mortgage rate for you!
It Provides Financial Peace of Mind
While many of the financial rewards associated with good credit can seem like the best part of a high credit score, one of the best things about it can definitely be how it feels to be in charge of your financial situation. Whether you’ve had a bad credit score in the past and you’ve improved it over time, or you’ve always been good with your personal finances, there’s nothing like having the knowledge that you can pay down your debts responsibly and your credit score won’t limit your financial possibilities.
With so many high credit score benefits, there’s no reason everyone shouldn’t be looking at ways to improve their credit and pay down their debts. From getting a lower rate to being in a position to negotiate, having good credit is very important for achieving a positive financial future!
How to Maintain Good Credit Score
If your doctor tells you that you now must take heart medication every day for the rest of your life, you would follow those orders, wouldn’t you? And, you would find a way to stick to that plan so you could live a longer, healthier life. Trust me when I tell you that this same type of commitment is required for you to maintain strong credit for life. While credit management is not a matter of life or death, it is certainly a matter of long-term servitude vs. long-term happiness that is found in financial freedom.
The following advice will make it easy for you to see your plan through from immediate fixes to long-term credit maintenance that will help you achieve long-term financial health.
‘Step 1: Join An Online Credit Reporting Program
Many consumers mistakenly have their credit report pulled by lenders because they want to know what their credit scores are. What they don’t realize is that this causes a hard inquiry trade line on their credit reports which can bring a credit scores down by several points. By joining an online credit reporting program, you don’t hurt your scores, and you have access to your important credit information all the time.
An online credit reporting program will also notify you when there is any activity—normal or unusual—on your credit reports with all three credit bureaus. And this is key to avoiding Identity Theft, which is considered to be the fastest growing crime in America.
If you are going to make the commitment, here’s what you should look for in an online program:
Make sure that you join a program that gives your credit reports AND scores from all three credit bureaus, Equifax, Experian and Trans Union. I recommend a program that refreshes your data every 30 days when you are actively working to improve your credit, or at a minimum, every 90 days when you are maintaining your good credit.
DAILY monitoring of your credit that will send emails to you every time there is activity on any of your reports. The credit bureaus are separate, and competing entities. Not all creditors report or use all three bureaus, so it’s important that you join a program offers DAILY monitoring of all three bureaus in case someone tries to access your credit for any reason without your knowledge.
Notification of changes in your credit profile or credit score.
Identity theft insurance.
The cost of a credit watch program can vary anywhere from $80 to $150 per year. Usually, most offer a trial period for 30 to 60 days for a minimal fee. If you are not happy with the service, be sure to cancel your membership before the trial period ends.
WORD OF CAUTION: The scores generated by many online vendors are usually unrealistic when it comes to lending. As a result, they are not a good source for determining how a particular type of lender will view you. However, they are a great source for Credit Maintenance.
Step 2: Order Your Credit Reports From The Three Major Bureaus Directly Every 6-12 Months
In addition to joining a credit watch program, I advise my clients to pull their credit reports from the three credit bureaus directly as follows:
If they are active with their credit, I have them check their data at the bureau level every 6 months.
If they are not applying for credit and have not received any notifications of unusual activity on their credit watch accounts, then I have them check their data at the bureau level once a year.
Use these reports to look for variations in personal identification and demographic information, accounts that don’t belong to you, check credit card limits, and open/close status. This is the time to give your credit a full check up.
Step 3: Start Keeping Records
In our credit scoring system, unfortunately, consumers are guilty until they prove themselves innocent. The story doesn’t matter, and getting an item updated or removed without proof can take months or even years. This is why keeping records, files, proof of payments and creditor agreements, is extremely important to maintaining strong credit. It takes only one inaccurate item to drop scores by up to 100 points. If you stay organized with your paperwork, then you can eliminate months of wasted time and frustration in getting those items corrected. Here are some tips:
Keep copies of past credit reports. You should try to keep a copy of your credit report from the three credit bureaus on file (electronically or physically). Frequently clients tell me that a derogatory account is older than the current credit report shows. New collections are re-dated all the time—which will also re-date the debt. When this occurs, an older copy of the report may indicate 1) when the item was actually charged off, which would help verify the real date of last delinquency on the account, and 2) prove that the account has been re-dated.
Create a file system for online bill payments. Online bill payments are very convenient. They also require a good deal of trust. When consumers make their bill payments online, there is no guarantee that the creditor will record the payment on time. For this reason, it’s important that you develop a system to keep track of online receipts. I advise my clients to take a screenshot of their payment confirmation pages and email it to themselves. Once they receive those emails, they should create a folder in Outlook, or another email program, dedicated to that one creditor. The subject line of the email should be the Creditor Name and Month of Payment.
Keep a spreadsheet of your open credit accounts. One of the most common responses I get from a prospective client who has late pays is that he or she “thought” the bill had been paid on time. Then, when asked to track the payment information, all of a sudden it becomes an overwhelming process to contact the bank, look for the cleared checks, and confirm the date the payment was made, and what month it was for. Having your open credit account and creditor contact information in one place makes it much easier to be sure you are on top of your payments so that not even one late pay occurs due to oversight.
Regardless of where you are with your credit scores and management, now you have specific steps you can take to further improve a good situation and/or make a bad situation better. Taking these steps doesn’t just apply to people who have serious credit challenges. According to Fair Isaac & Co., the top credit score is 850, however, too many consumers settle for less—sometimes far less. Even if you have an excellent credit score, you can and should take action to improve those scores.