How we manage our money is visibly displayed for anyone who wants to see it. And a few people like mortgage, loan, credit card, insurance companies as well as the landlords and even employers want to see how you handle your financial affairs before they make a decision on you. Wouldn’t it be sad to miss on your dream home because you cannot get a mortgage with bad credit or miss out on a lovely apartment for the same reason?
How Does Credit Score Work?
Most of your transactions with utilities companies and lenders are recorded by credit agencies. If you have been paying your loans and bills like clockwork you will see that your credit score will improve in time. If you start missing one or two of them every so often you will see those go down as black marks and knock a few points of the total score.
It is usually classified as good, fair and poor. When you have a good score you will enjoy a few benefits. You will be able to get low rates for your mortgage, loans and credit cards. You will probably qualify for cheap auto and home insurance as well. Each insurance company has a way of calculating insurance credit ratings of each applicant. Essentially these ratings are based on information they receive from credit agencies.
It Takes Time to Build Good Credit Record
Unfortunately, you cannot turn a bad score into a great one overnight. It takes months for the information to be processed through your creditors, reach to agencies and affect your score. This requires constant effort to stay on top of all your payments by managing your money well. In other words, you need to develop a disciplined approach to your finances.
You may be thankful that it takes a while for problems to show on your history as well. This would allow you to prepare yourself in cases of unavoidable circumstances. Losing your job unexpectedly can be one of those circumstances. If you don’t have enough savings and you cannot get employment quickly you will start prioritising bill payments that you may miss one or two of them.
When you see what is coming, you can prepare yourself by being smart about it. For example, you can buy an annual auto insurance policy instead of a six month policy. Companies will only check your credit score and take it into account when you are buying a new coverage or renewing it. The difference in premium costs between good and bad credit can be as much as twenty five percent according to cheapautoinsurance.net website.
Your Credit Score Affects Spendable Money
Most people have fixed monthly household incomes. Out of that they pay mortgage, auto loans, home and vehicle insurance and credit card interest. Mortgage alone can be as much as forty percent of your salary. If you can get one percent lower interest rates you can save $1000 per $100,000 borrowings. If you add savings on home and automobile premiums as well as discounted rates on other borrowings total savings can be $2,000 and upwards. Savings would be much bigger if you have a larger household budget and borrowings.
You can use this money towards paying off your debt faster, put aside as emergency savings, invest or spend on things you like. Therefore, you shouldn’t be sloppy with your payments and money. You should know exactly how much and where you will pay and try not to go over your budget. You can set up automatic payments for your regular outgoings and manage them online through your bank account.
James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.