How a Solid Credit Score Saves You Money
There was a time when I had no real interest in my FICO score. I always thought it was just another number and wasn't sure just how relevant it was to my day to day living. But I was wrong.
My FICO credit score has a direct bearing on what kind of interest I can expect to pay on a loan, a mortgage or any other similar product. In fact it also helps lenders decide whether they should even consider me for a loan in the first place. I've also learned how much of an influence your credit score actually has on your chances for landing a job or getting into a new apartment. Many employers and landlords review your credit history carefully before deciding to enter into a working relationship with you.
The Importance of Keeping an Eye on Your Credit
A FICO score is comprised of a few elements, each one is formulated as a percentage of the overall score: these include your payment history, amounts owed, length of credit history, new credit and types of credit used. From what I've studied, my ability to make payments on time or to pay off my debt promptly accounts for a massive 35% of my overall score. That’s over a third of my score that can be attributed to my own actions.
Here's where it's important to keep watch over your credit rating, whether you do it on your own by ordering your credit reports via AnnualCreditReport.com, or through the use of a paid credit monitoring service. If upon review, you discover that your credit may have taken a hit, you should remedy the situation by first finding out whether you've been on time with your bill payments. Start by working on those things you can control and do what you can to resolve any delinquencies in your financial records. You should realize that avoiding late or missed payments has a significant impact on your credit rating, and ultimately, on your overall financial health. Again, this has a whopping effect on your total FICO score.
The Costs of Poor Credit
There have been times in the past when my FICO score wasn’t quite as good as it is now. And I now realize that I probably paid more for things back then than I might have done if I had taken better care of my credit.
While your credit score can affect lots of things in life, it has the biggest effect on the costs you incur as a borrower. For example if I'm looking to get approved for a prime credit card and I had a low FICO score, I wouldn't qualify to receive the more attractive terms on this card, and will likely be denied the card altogether. This is the unfortunate consequence of having poor credit, and there are strong reasons why this is the case: the lower your score, the bigger a credit risk you are deemed to be, and therefore, the higher the personal loan interest rates that you are charged.
So when it comes to big things like a mortgage or a car loan, you can pay a lot more over time if your credit score is at the low end of the scale. I am now someone who remains vigilant about my credit; when I pay my mortgage each month, I revel in the knowledge that I'm saving hundreds of dollars per month, thanks to excellent loan terms that I've been able to secure successfully.
Get Educated About Credit
While FICO information is readily available out there, not everyone understands it too well. But it's something you should be willing to learn about and to give a bit more priority to. After all, it's not something they readily teach us in school, so a lot of folks have to read up on this on their own, or have a lender teach them the ropes. The irony here is that this kind of information is hardly exciting, but the savings it brings can actually pay you a lot of dividends over time, which should be pretty exciting. This is actually one aspect of finance that can make a huge difference on your financial bottom line, if you remain on top of things.
If you find yourself resisting this little bit of financial education, then think of it this way: If you can only invest some time now educating yourself about your own FICO score, finding out what it is and figuring out what you can do to improve it, you can look forward to getting the best deals you can make as a consumer. You can look forward to saving a tremendous amount of money over time.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.