by Mary Thorson
Do you have a ‘good’ credit score or a ‘bad’ credit score? Does it matter? You’ll have to answer the first question, but, the answer to the second question is an emphatic, “Yes!” A bad credit score limits your ability to conduct your financial affairs and causes you to pay more than others for the same credit-related products and services.
A credit score is a mathematical representation of activity on past and current accounts and indicates a person’s likely financial behavior in the future. Banks and other lenders rely heavily on your credit score to determine whether your application will be approved and on what terms. The lower your credit score the more likely it is that your application will be denied, or, it will be approved with a higher interest rate and fees than loans to applicants who have higher credit scores. Higher interest rates and fees translate into higher costs of credit.
Don’t be fooled thinking that loan or credit card applications are the only things affected by your credit score. Credit checks are common to obtain automobile insurance, mobile device or cell phone plans, public utilities services, and home or apartment rentals. Future employers may ask for your written approval to check your credit record (but not the score), and they may use the information when they make hiring decisions. Some types of jobs require good credit ongoing, such as those in the financial sector or those requiring use of sensitive or proprietary information.
Begin with these steps to improve your credit score or maintain a good credit score:
Pay your bills on time without fail – bill-paying behavior is a key factor of the credit score;
Apply for and use only the credit you need – creditors and others evaluate not only the credit accounts that you have used, their balances, and payment histories, but, they also evaluate the “credit available,” that is, open accounts with approved credit limits for which there may be no balance at the time. Each one represents another potential debt;
Know what is on your credit report – all information on the report, whether it is in error or not, affects the credit score. If there are errors, contact the responsible creditor to request a correction. You can obtain a free credit report at www.annualcreditreport.com, and you can check your credit score without cost once a month at www.credit.com/free-credit-score/.