Having good credit is important because it affects your purchasing power and cost of insurance. Generally, if you have good credit, you will be offered lower interest rates on loans, credit cards, and lower insurance premiums. You may also save money by paying less in security deposits for cell phone service and new utilities.
Steps to build, maintain a good credit history
- Pay your bills on time
- Keep the balances on your credit cards low, or pay off the balance in full every month
- Limit the number of credit cards you open
- Monitor your credit reports
A credit score is used by creditors to predict how likely you are to timely repay a loan. Your score is determined by information in your credit history and a mathematical formula. Depending on the credit reporting company, scores range from 300 to 900. Usually the higher your score, the more likely you are to get better credit terms.
Review your credit report
Your credit report has information that affects if you can get a loan and how much it will cost you to borrow money. By regularly reviewing your report, you can ensure the information is correct (especially if you plan to buy a house), and to help prevent identity theft. Thieves may use your information, such as your Social Security number, to open a new credit card in your name, but neglect to pay the bill. A delinquent account can affect your ability to get credit, insurance or get a job.
You can look at your credit reports each calendar year for free by accessing it online, by phone at 877-322-8228 (toll-free), or by completing and mailing the Annual Credit Report Request Form.
You may request all three reports at the same time, or request a report from one of the reporting agencies every four months; this enables you to keep an eye on the information in your reports over a year-long period.
You have the right, under the Federal Credit Report Act, to correct incomplete or inaccurate information on your credit reports. Both the credit reporting agency and the company (the creditor) that provided the information are responsible for making sure the information is accurate. The Federal Trade Commission has specific steps for you to follow.
If you need help in reducing or managing your debt, you may want to consider working with a debt management company. They can help you create a budget, consolidate your debt, and correct errors on your credit report, among other things. The division registers these companies and limits the rates they may charge.