Value of Good Credit
Lenders and creditors confidence increases with good credit history when they loan money to you. When your credit history shows you have paid back your loans as agreed, lenders are more likely to extend credit again. The positives of good credit, you can borrow for major expenses, such as a home, car or education and the biggest positive is you can borrow for a lower cost than with weaker credit which means good credit helps you save money.
What Creates Your Credit Score
There are many formulas used today to give a snapshot of your creditworthiness predicting how likely you are to repay your debts. The most commonly known one is from Fair Isaac Corporation (FICO). Their website (www.myfico.com) shares your credit score is determined using the following factors:
- Payment History (35%) - Have your payments been made on time? Have you ever filed for bankruptcy or lost your home to foreclosure? How frequently have your bills gone to collections?
- Amounts Owed (30%) - How much do you owe to creditors and lenders?
- Length of Credit History (15%) - How long have you had credit?
- New Credit (10%) - Does your credit report indicate that you have made numerous applications for new credit and are potentially taking on too much debt? Did you recently receive multiple lines of credit in a short period of time?
- Types of Credit Used (10%) - Does your credit report show a "healthy" mix of credit types in use?
Create and Manage Your Good Credit
Understanding and educating yourself to use credit wisely can start your path to homeownership and saving money. The credit decisions you make today will impact your financial future. Here are a few tips to start or strengthen your credit:
- Open checking and savings account. When you have your checking and savings account be sure to avoid unnecessary minimum balance fees, never bounce checks and make regular deposits. When applying for a mortgage your lender will request bank statements. More to come later about bank fees and what to look for in a bank vs credit union.
- Use credit cards carefully. Credit cards give you great flexibility and safety but can also cost use hundreds or thousands of dollars in interest alone. Allowing your credit card balance to go higher than 30% of its limit unpaid each billing cycle or go over the limit will not only cost you but weaken your credit. Focus to pay them on time and do not let the balance roll over more than the 30% of each limit will show lenders our ability to pay on time and that you have the ability to manage your debt without over spending. This will keep your credit growing and help you save money, see the trend.
- Establish credit independently. Very important for both partners in a marriage or relationship to establish their own credit to achieve financial goals and protect against unforeseen circumstances. I have seen many times a widow or widower has to close credit accounts because of death and only to find out they have no credit history for themselves. Be sure to communicate with each other to ensure that neither has an excessive amount of charges that cannot be repaid.
- Honor your promises to pay. This is extremely crucial. You must honor your promise to repay loans or credit cards on time and in the amounts scheduled. Contact your lender or creditor immediately if you are experiencing difficulty making payments.
- Know what's in your credit report. Go to www.annualcreditreport.com each year to check your credit to ensure accuracy. This site was credit to provide you a free credit report by law from the three credit bureaus (Equifax, Experian and Transunion). When you are planning to make a large purchase like a home be sure to check your credit so there are no surprises.
Restore Your Credit
This is the time you must use caution. Avoid disreputable credit repair companies at all cost. Those that promise to repair your credit and take your money which could lead to more debt. Go to the three bureaus to follow their steps on improving your credit, it cost you ZERO.
Now is the Time
Take action now to strengthen your credit because when you want to use your credit and it's not ready to be used you will feel the pain with higher rates and more money coming out of your pocket. Strong credit will give you the financial freedom you are looking for help you increase your savings and help you meet all your financial goals.
If you would like more information about this topic or interested in what it takes to buy a home or sell your home please contact me at 407-454-9800 or firstname.lastname@example.org
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Ron Roberts SRS
Empire Network Realty, Inc