KNOXVILLE (WATE) – Certified financial planner John Fawaz shares helpful tips on how to ‘get smart’ about your credit.
Why is Credit Score important?
Credit Score is very important for everything not only financially when getting a loan for a home , or business loan but more than 60% of employers check the credit score of potential hires. So bad credit could cost you a dream job.
How to build credit?
A secured credit card is a fast way to build credit. Basically you will go to a Bank or Credit Union and deposit money for example $1000. That is used as collateral and works just like a normal credit card. Payment History: Pay your bills on time. Delinquent payments even if only few days late can have negative impact on your score. Once it gets on your credit report it stays there for 7 years. If you missed payments get current and stay current the longer you pay bills on time your scores will start to go up.
How to improve Credit Score?
Reduce and eventually eliminate bad debt and lower the utilization the better. You want to reduce bad debt like credit cards and general rule of thumb is to use less than 1/3 of the available limit. A person that used $300 of $1000 and pays it off would have a much higher credit than one that uses $1000 and pays off $1000.
Don’t open new credit cards that you don’t need.
We all do this when we go to retail stores and have a big purchase they tempt you open credit for a discount. If the saving is substantial do it to get the discount and then cancel in a month because having so many credit cards even with zero balance hurts your credit score because it messes income to available debt ratio.
What should everyone do?
You should get a credit report to see if there are any errors or discrepancies, according to the federal trade commission 42 million Americans have errors on their credit report which cause some to be declined for credit or have to pay a higher interest rate which means more money out of pocket.
You are entitled to a free credit report from each of the rating agencies out there so take advantage of it.