You and your credit (1 of 4) – Why credit is important
Much of the information contained in this four-part post was composed after listening to the audio book (multiple times) called 7 Steps To A 720 Credit Score by Philip X. Tirone (buy from Amazon).
There’s a game out there, and whether you want to be playing it or not, we all are. It’s the game of credit and it might be more important than you think. Your credit score is your financial reputation. These days it affects many of the necessary things we do – mortgages, auto loans, credit cards, and insurance are all dependent on your standing in the credit world. To make sure you’re getting the best rates on all of these, it’s important to play the credit game as best you can. Unfortunately we’re often playing by a set of rules that most people don’t understand.
Only one-third of people have actually pulled and examined their credit report. Half don’t understand what activities actually affect their credit score. 85% of us have an error on their credit report and an estimated 40% of those are paying a higher mortgage as a result of an error. An error – something that’s not even supposed to be there – doesn’t it make sense to want to fix it?
Is it starting to make sense why this is important? How about this real-world example: two people getting the same loan for the same house – $300,000. One has a credit score under 620, the other’s is over 720. Their difference in monthly payments can be almost $600. You read right – a whole $589 difference in payments EACH MONTH! When your credit score is good, lenders will compete to give you the best rates on the necessary loans in life. Over the course of years, you’ll be saving hundreds and thousands of dollars on interest – money you can spend or invest toward your future.
If we’re stuck playing the game, let’s learn some of the rules. Coming up, I’ll discuss in detail your credit score and steps you can take to make it work for you throughout your life. In the meantime, here a some common misconceptions about you and your credit (the following items are not true):
- Less credit is better (false)
- Lowering my limits will increase my score (false)
- Closing accounts will increase my score (false)
- Maintaining a balance on credit cards is necessary for a good score (false)
- Requesting my report or score will decrease my score (false)
- If I pay my bills on time and in full, I’ll have perfect credit (false)
Until next time don’t be afraid to start your own research – there’s an almost endless amount of information to be found out there – just don’t commit to paying for anything yet – you probably don’t have to.
Continued on You and your credit (2 of 4) – credit score fundamentals
