A credit score is really a snap-shot view of a person and their spending/lending habits. A credit score will tell how responsible someone is with their credit, what their financial picture looks like now and what it may look like in the near future. If you can establish and keep a solid credit score, you will potentially save hundreds of thousands of dollars on interest over a lifetime.
For example, you would save over $69,000 in interest with just a small 2% difference in interest rate (5% vs. 7%) on a 30-year mortgage at $150,000. You would save almost $1,700 in interest with just a small 3% difference in interest rate (4% vs. 7%) on a 60-month auto loan at $20,000.
It’s worth building your credit and staying on top of it. Here are a few important tips for building your credit:
- If you have little to no credit, become an authorized user on another account. Many students or young graduates have very little credit. Becoming an authorized user on your parents’ credit can help to build credit history.
- Try to pay down your debt faster. Credit utilization rate is the amount you owe on credit lines versus your total credit limit. Example, if you have $10,000 in credit line limits and you owe $3,000, you have a credit utilization rate of 30%. Keeping that number low is important in building and maintaining your credit.
- Increase your credit limit(s). This is a way to decrease your credit utilization rate without opening more credit cards or lines of credit. Opening several credit cards or lines of credit can negatively impact your credit score. Take steps to increase your credit limits instead.
- Monitor your credit. Make sure your pay histories, credit accounts, credit balances and inquiries are all accurate on a periodic basis. Each individual is entitled to a free credit report every 12 months. Get your free report each year.
By taking these tips into consideration, you can help improve your credit and save yourself some money.