Everyone knows a high credit score is good but why should it be important to you? I think most of us have made mistakes with our credit at some point in our lives. I remember turning 18 and getting a credit card application in the mail. In my immature mind, it sounded like a fantastic idea! Seriously though, why would anyone think it’s a good idea to give an 18 year old a credit card to buy things that they will pay for “later?” That credit card got me in some trouble early on as well as an unfortunate incident involving a gym membership and collections. Fortunately, I grew up and learned more about how important it is to stay out of debt and am now a proud member of the “Excellent” range of credit scores. But what if your credit score is not very high, how can you improve it? Read on to learn why you should care about your credit score and what you can do to improve it.

Why your credit score is important 

Loans

Are you in the market for a car or do you want to own a home someday? Then your credit score is important when it come to loans. Lenders use your credit score to asses your risk as a borrower. Loans and loan rates are determined by your credit score as well as whether you can get a loan at all. A high credit score will get you the best terms on a loan. A low credit score will get you less favorable terms and you will usually end up paying more on the same loan in the long run. A good credit score will also give you more room to negotiate favorable terms and be able to shop around for a loan as opposed to going with the only lender that approves you. 

Employment

You are applying for a new job, your resume is perfect and you have your interview outfit ironed and ready to go but did you know that your credit report may be part of a hiring decision? Before I joined the wonderful world of IGG Software, I used to do recruiting for a large company. Although we would not get a credit score, we would run credit reports for applicants that would deal with managing money in the company. We were looking for a history of how the applicant managed money. A credit report check for a potential employee is only done with their permission and is not legal in all states. Having your credit report in good shape can be attractive to a potential employer. 

Utilities

Everyone needs utilities for their home. You need electricity, water and gas to function in your day to day life. But did you know that having bad credit can actually have those utilities cost you more? Utility companies provide you service based on the assumption that you will pay your bill. If your credit is deemed unacceptable by the utility company, they will require you to pay a deposit prior to service being set up. This deposit will be dipped into if you fail to pay your utility bill. Usually, after a certain amount of bills paid on time, you can get your deposit back. If you have to pay a deposit to several different utility companies, you may be shelling out a large amount of money due to a bad credit score. 

How to improve your credit score

Check score regularly

At least once a year, you should run and review your full credit report for errors. The Fair Credit Reporting Act allows you a credit report once a year from the 3 major credit bureaus: Experian, Equifax and TransUnion. These are free reports, take advantage of it!  Mistakes do happen but you are the only one that will know if there are any on your report. Besides running the full report, you can keep an eye on your credit score through your credit cards. I have a Wells Fargo credit card that sends me an email monthly with my current credit score. As long as there is not much of a difference, I don’t do anything else. If the score has changed drastically from the month before, I will pull my report to see what has changed and if it is correct or a mistake. There are also paid services you can get to have your credit report monitored. 

Pay bills on time

This should be a no brainer, pay your bills on time and your credit will improve. Missed payments stay on your credit report for 7 years! Payment history is one of the main factors in your credit score. Make a plan to stay on top of your payments. You can set up automatic payments so they won’t be late. If you forget about one, make sure to call the company and see if the fee can be waived and prevent it being reported to the credit bureaus. I have found most companies to have a policy in place about how often they will allow this to happen on your account. It never hurts to ask! 

Reduce debt

Another big factor in your credit score is your credit utilization. Credit utilization is your ratio of outstanding credit card balance to your credit card limit. A low credit utilization means you are only using a small amount of the credit you are approved for and will reflect a higher credit score. High credit utilization makes you more of a risk to creditors of falling behind on payments. By paying off some of the credit cards, you will lower your credit utilization. Another quick way to lower your ratio is to ask your credit cards companies to increase your limits. 

There are so many reasons why your credit score is important and ways that you can improve it. We love to hear from you. Share below how you have improved your credit score. 

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