According to a recent article on CNN (in regards to the FACS Act), approximately 65% of Americans have not checked their credit reports in the past year, and nearly 1/3 of them don’t even know their credit scores. Let’s look at that again, with emphasis:
Nearly 1/3 of the entire US population has no idea what their credit scores are.
That’s already a pretty alarming concept in and of itself, but what really raises cause for concern is when you stop and realize that just because you’re clueless about your credit doesn’t mean others aren’t.
Who’s keeping score?
Anyone who knows anything about their credit history knows it’s essentially the permanent record all our teachers told us would follow us around for the rest of our lives. Except instead of showing your finger-painting skills were less than exceptional, it highlights your inability to pay your MasterCard bill on time.
So what does this mean for you and any potential loans? Well, while most of us see our credit reports as our past good or bad spending habits spelled out on paper, lenders use our histories as a barometer for how much of a risk it would be to lend money when we come calling. They basically look at your history to decide whether or not we’re actually good for the money.
You must be this tall to ride
Anyone who may be lending you money, or dealing with you on a financial basis period, will first check your FICO score. The best score you can hope for is 850, though only 13% of the US population ever sees a score that high. Studies have shown that nearly half of Americans (45%) have a score that falls between 700-800, which means that the rest of us may not be in as good of shape, as almost anyone who looks at your score will be looking for a number higher than 650 at least. And just who all is checking your records?
Lenders: The most obvious group that checks your credit score. If you don’t make the grade, you could end up either turned down for the loan you applied for, or end up with a ridiculously high interest rate.
Landlords: I personally know people currently on the hunt for a new apartment, so I personally know how much difference your credit score can make on the kind of lodgings one may qualify for. Much like financial lenders, landlords look at your credit score to determine whether or not you can actually pay your rent on time. Low scores mean you may have to look for someone to cosign a lease.
Insurers: 15 minutes may save you 15% on car insurance, but not if your score isn’t up to par. Every auto and home insurance company checks your credit score in order to determine your rates. A recent Consumer Reports survey among top auto insurance providers found that drivers with good credit scores paid up to 31% less on their premiums than their low scoring counterparts, who had to pony up to 143% MORE for their premiums.
Employers: That’s right, even your future boss may have checked into your credit before hiring you on. While not every employer pulls your credit report (35% according to the Society for Human Resource Management, and only if they notify you first), those who do are often looking at your report as way of determining how financially responsible you are.
Cell phone and utility providers: Before you rush out to buy an iPhone or an Evo, you might wanna check that your credit is in decent shape. Just as lenders and landlords use your score to determine how financially responsible you are, cell phone and other utilities providers check your score in order to determine which rate you qualify for. Those with lower credit scores may have to pay a higher deposit or may not qualify at all.
How to avoid these pitfalls
So how do you make sure your credit is in tip-top shape for any potential window shoppers? Even if you’re not on the hunt for a car loan or a new job, building a better credit profile is a very important part of a balanced financial portfolio.
All you need to start are a few credit cards (3 is the most I’d recommend for your report). Charge a few relatively small purchases to them – keep the balances below 20% of the card’s available balance, and always pay the bills on time. Wait for your accounts to show some age on your report, and you’ll be on your way to a brighter financial future.
For more detailed credit advice, speak to a certified credit specialist at My Credit Group.
Related Articles:
