Cost of Debt: Reasons You Need a Kick Ass Credit Score
- Written by Candice Elliott
In the personal finance world there is a lot of talk about the cost of debt and credit scores. But what makes up a credit score and why is it important to have a good one?
Put simply, a credit score is a way to tell if you are good at paying bills on time. But a credit score can impact your life in ways you may never have thought of.
1. Insurance rates. The higher your score, the lower your rates for home, car, and life insurance. Conversely, the lower your score the higher the cost. The reasoning is that people with high scores are less of a risk because they are more responsible whether that means less car accidents or less cooking accidents.
2. Using a credit card for purchases offers buyer’s protection. If your credit card is stolen, you don’t lose any money, the bank eats it. If your cash is stolen, it’s gone. Some credit cards also offer free extended warranties on some purchases, insurance on rental cars and some travel protection like reimbursement for money spent while bags were delayed or lost. Check the fine print, there are a lot of great perks to some credit cards.
3. A good credit score helps you with renting. Landlords run credit checks and will either reject you or charge you a much higher deposit for a lower score.
4. Lower interest rates when buying a home or car. The higher your rating the lower the interest rates banks will charge when lending you money and thus reducing your cost of debt.
5. Employers sometimes run a credit check. An employer must have your permission and tell you if your credit rating cost you the job. It’s not fair but we need to be aware of it.
It’s important to monitor your credit score but don’t pay for it. Credit Karma will give you a free credit score. It’s not exact but it’s close enough to let you know where you stand.
How can you improve your credit score?
1. Pay your bills on time.
2. Keep your credit utilization under 20% of your total credit limit.
3. Avoid mistakes that leave a bad mark on your credit. This includes things like paying not only credit cards on time but things like cable and phone bills as well.
E Credit Attorney: A company that can help clean up mistakes on your credit report.
Maxed Out: A documentary about credit practices.
Ready For Zero: A service to help you track and pay off your debts faster.