At PIE, we help individuals save for permanent assets, such as a home, a business, or an education. Another part of the PIE program is financial education and the practice of saving every month. We know that the pairing of knowledge and the practice of saving makes a difference, not only in saving for the short term, but in the long term it can develop the habit of saving for life.
This month we would like to share some information from America Saves and Experian about the connection between the habit of saving and a good credit score.
It is important for all Americans to have savings. Having a savings account allows you to pay for emergencies, gives you financial freedom, and can help you avoid credit problems that could hurt credit scores.
Having a strong credit history, reflected in good credit scores, allows you to qualify for lower interest rates and fees. This helps you to free up additional money to set aside for emergencies, retirement, and other smaller unexpected expenses.
The connection between successful savings and good credit plays an important role in your financial life. Not only is it essential for obvious things like qualifying for a loan or getting a credit card, but also for less obvious things like getting cellular telephone service, renting a car, and perhaps even getting a job.
WHAT IS A CREDIT REPORT AND SCORE?
A credit score is a three‐digit number that measures how likely you are to repay a loan on time. It uses information from your credit report to predict the risk of you not paying that loan back 24 months after scoring.
A credit report is an explanation of your credit history. It states when and where you applied for credit, whom you borrowed money from, and whom you still owe. Your credit report also tells you if you’ve paid off a debt and if you make monthly payments on time.
From www.moneyunder30.com/what-is-a-credit-score
How can I get a copy of my credit report and score?
The three nationwide consumer reporting companies‐ Equifax, Experian, and TransUnion are required by The Fair Credit Reporting Act (FCRA) to provide you, at your request, with a free copy of your credit report once every 12 months. (Available at www.annualcreditreport.com)
5 TIPS FOR BUILDING GOOD CREDIT
1. Establish a credit report
To establish a credit report you must have an open, active credit account. To get your first credit account talk to your bank or credit union.
2. Always pay as agreed
Make at least the minimum payment due each month and never be late. Delinquent payments and payments that don’t meet at least the minimum contractual amount will have the most immediate, negative impact on your credit report and credit scores.
3. Keep your balances low
Keeping your balances low as compared to your available credit limits is a sign of good credit management and shows lenders you are a good credit risk. Your utilization rate, also called your balance‐to‐limit ratio is a key component to credit scores.
4. Apply for credit wisely
Do not apply for multiple accounts in a short period of time. Taking on large amounts of debt in a short time is a sign of high credit risk. Apply for credit when you need it, and only in the amount you need. Just because credit is offered, doesn’t mean you have to accept it.
5. Demonstrate good credit habits over long periods of time
In order to have good credit scores you must demonstrate a habit of good credit management over a long period of time.
FREQUENTLY ASKED CREDIT QUESTIONS
Do Missed Payments Affect My Score?
How many payments you miss, if you don’t pay the debt at all, and how long ago late payments occurred are all important. The further in the past a late payment occurred, the less impact it will have on credit scores and lending decisions. That is why it is important to catch up on your payments if you have fallen behind.
How Can I Get Credit if I Can’t Open a Credit Account?
If you cannot get a credit account through a bank or credit union, you may need a friend or family member to cosign for you or add you as an authorized user on an existing account.
Will Closing Accounts Raise My Credit Score?
Be cautious about closing accounts. Doing so will reduce your available credit limits and will increase your overall utilization rate, making it appear as if you have suddenly taken on more debt. The result is a temporary negative impact on your credit scores.
Will Applying for New Accounts Raise My Credit Score?
Each time you apply for credit an inquiry is added to your credit report. Inquiries are a record that a lender has reviewed your credit report in response to your application for credit. They indicate that you may have new debt that is not yet shown as an account in your credit report, and so represent an unknown risk to lenders. For that reason, recent inquiries can have a small but meaningful impact on credit scores. However, that impact is temporary.
How does Shopping for a Car or Home Affect My Score?
Inquiries for auto purchases and mortgage loans are unique. Because lenders recognize you will shop for the best auto and mortgage loan rates, inquiries for those types of loans in a short period are counted as a single inquiry by credit scoring systems. Doing so enables you to find the best rates with little or no impact on your credit scores.
What is the First Step to Rebuild My Credit Score?
The first step in rebuilding strong credit scores after having credit problems is to bring your accounts current. Before your credit scores will improve significantly, however, you must show that you have regained control of your credit by making on‐time payments over time. The more serious your past credit difficulties, the longer it will take to rebuild a positive credit history and strong credit scores.
Want to learn more about the importance of credit history and successful savings?
Visit these websites:
My Fico, About Credit Scores www.myfico.com/crediteducation/creditscores.aspx
Money Under 30, Understanding “Your Number” www.moneyunder30.com/what-is-a-credit-score
Bankrate, Credit Scores Explained www.bankrate.com/brm/news/cc/20010223a.asp
Download Credit History and Saving Experian and America Saves
Content provided by Utah Saves and America Saves
For more information visit www.AmericaSaves.org
America Saves is a campaign coordinated by the nonprofit Consumer Federation of America (CFA) and is dedicated to helping individuals save money, reduce debt, and build wealth.
