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The Importance of Credit Scores

Your credit will take care of you only if you take care of it.

Oscar Wilde said, "A man who pays his bills on time is soon forgotten."

These are words to live by. If creditors are hounding you, it's likely not because they want to thank you for your timely payment. The world of credit can be as vastly confusing as the initial erudition when learning a new language. Knowing the basics is sure to assist you in taking the proper steps to master your credit, becoming debt-free, and avoiding becoming easily flustered.

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Several people believe a credit score is used only to acquire a loan and determine interest rates. Unbeknownst, a credit score holds exceptionally more value than merely determining rates of interest. Credit scores are an analysis of "liability" in terms of repayment. This means that your credit score can affect a person's willingness or company's decision to allow you to borrow money, as well as setting a standard of what your interest will be. Insurers use credit scores to determine premiums for auto and homeowners coverage, and landlords use them to limit who gets to rent their apartments. Credit scores can determine who gets the best cell phone plans or pays more extensive deposits to get utilities.

A credit score number is usually on a scale of 300 to 850. A score less than 580 would likely disqualify you for a mortgage. Most people don't have just one score, but several, and it can change all the time. The primary scores are FICO and Vantage. The three major credit bureaus are Experian, Equifax, and TransUnion. To track your credit score's progress over time, monitoring the same type of score from the same bureau is suggested. You can get your score from your credit card issuer or your bank for free. Soft inquiries aren't associated with a specific application for new credits and are only visible to you when you view your credit reports. Checking your credit score is recognized as a "soft pull" and doesn't affect your score negatively, but applying for a credit card requires a "hard pull" and temporarily flags your credit score. "Hard pull" means that a lender has requested to view your credit file to decide if you pose a risk as a borrower. "Hard pulls" appear on your credit report for 2 years and can affect your credit score for up to 12 months. Several hard inquiries in a short period can provoke lenders and credit issuers to consider you a higher-risk, sequentially resulting in a denial of credit.

The earlier you start to understand credit maintenance, the better prepared you will be. You can start applying for credit and tending to your credit score at the age of 18. Many financial institutions offer credit-builder loans. These loans place the money you borrow into a CD or savings account that you can claim after making a required number of payments. To build credit, applying for a credit-builder loan or applying for a secured credit card can help. Applying for at least two secured credit cards can also help build your credit, but it can take multiple months or even years to build a consistently good or excellent score. A cash deposit from the cardholder backs a secured credit card. The minimum deposit amount for most secured cards is $200 or $300. This deposit acts as insurance on the account, rendering the card issuer with security if the cardholder can't make payments. So if you deposit $300, you'll have a $300 limit. Any balance you carry over from month to month will gain interest. After being liable for a secured credit card for a minimum of 12 months, you should be able to obtain an unsecured credit card. In most cases, your security deposit will be refunded once your account balance is paid off and the account is closed out.

Abraham Lincoln once said, "You cannot escape the responsibility of tomorrow by evading it today." If you think you will have difficulty securing payments, call your lender. They would much rather try to work things out with payment arrangements than lose you as a customer. Know and remember your limits. Make lists, mark calendars, set reminders. Your credit score is one of the most important numbers in your financial life. Do whatever you have to do to keep it in excellent standings.

By: Jowanna's Corner

Getting Grown, LLC

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