The Importance of Good Credit

Well, I finally went to www.experian.com and got my credit report and score for $15.00. It was time for me to check up on my credit (like Mikey said, the last time I checked my credit report there were all these credit card accounts open in my account that weren't even mine!). Well, I finally checked up on it today, and I have a good score: 778. That's rated excellent and above 90% of the population. Yes!! I don't know why but bringing home high credit score is kind of like bringing home an A on a report card.

So why is it important to have good credit? Your credit score determines your ability to borrow money. If you have bad credit, you will get slapped with high interest rates when you want to buy a car, buy a house, etc. And high interest rates mean you're going to be paying a heck of a lot more money for your future house than someone who has good credit.

What is contained in your credit file? Basically all information on your credit cards, bank accounts, any kind of loan, mortgage, salary, where you live, etc. Any activity that you've had on any of these accounts are recorded in your credit file.

Your score can range between 300-900 and most people end up somewhere between 600-700. Here are some factors that affect your credit score:

1. Late payments: Everytime you miss the due date for your bills, it's recorded in your file. Your late (or lack of) payment affects 35 percent of your total score.
2. Maxing out your cards: Like late payments, everytime you max out your card, it gets recorded. This makes up 30% of your score.
3. How long you've had credit: If you've had credit (hopefully good) for 10 years, your considered less of a risk to loan to than someone who has had credit for only 10 months. This accounts for 15% of your total score.
4. The number of credit cards/loans, etc. you have. Everytime you open up a new card (especially over a short period of time) it affects your score. 10% of it.
5. Credit diversity: It's better to have a good mix of credit cards, mortgage, auto loans, etc. This affects 10% of your score.

Here are the 3 credit agencies if you're interested in checking up on your credit:

Experian - www.experian.com
Equifax - www.equifax.com
Trans Union - www.tuc.com

Don't forget: Everytime you apply for a loan, it gets recorded in your credit report. When lenders see that you have lots of inquiries on your report, it'll look bad and result in higher interest rates!

If you want to improve your credit score, here are some tips to follow:

1. Pay off your debts
2. Decrease the number of credit cards you have - cancel any cards you don't use (I like to keep it down to 2)
3. Pay your bills on time!
4. Look at your credit report and make sure you fix any errors on your report!!! (Last year my score was in the 600s due to things on my report that were mixed up with another person with a similar name)
5. Don't max out your cards!
6. Only apply for credit if you need to (in other words - stay away from department store cards - they are completely unnecessary and will only hurt your score!)
7. If you need to apply for loans or credit cards, space them out. Don't try to apply for 3 credit cards within 4 months. You should wait at least 6-12 months before applying for another card.
   
8. Try not to get too close to your credit limit on your cards.