It’s no joke—having bad credit can cost you money over time. Borrowers who have low credit scores literally pay hundreds of thousands of dollars more in interest over their lifetimes than consumers with high credit scores. That’s because lenders see you as being more of a risk. But the higher your credit score, the more negotiating power you will have when applying for an auto or mortgage loan. A high credit score can also get you lower interest rates on credit cards.
Find out what your creditors and lenders know about you. Order copies of your credit reports and get your FICO score, which most lenders use. They also check how much money you owe and how much credit you have available to you. Take a look at the reports from all three major credit-reporting bureaus (Trans-Union, Experian and Equifax). Each bureau may have different information about you and some errors can hurt your credit more than others.
Inform the credit bureau of any inaccuracies you spot on your credit report. Ask the credit bureau to investigate information that doesn’t seem right and then correct it if it’s wrong. Follow up with the credit bureau if you don’t hear back as someone else’s mistake could lower your credit rating.
Build an impeccable payment history. Pay all your bills on time each month—including rent, mortgage loan, auto loan, utilities and credit card payments. Creditors like to see that you manage your finances and credit well. Remember, if something happens and you don’t get the bill in the mail, you still owe the payment on time. Know the due dates for your regular bills. If you haven’t received a statement, contact the customer service number listed on your previous bill.
Keep credit card debt low. Manisha Thakor, co-author of "On My Own Two Feet," suggests maintaining a low credit card balance. Depending on a card’s credit limit, you want to keep the balance as low as possible, preferably below 50 percent in order to avoid hurting your FICO score.
Lower your debt-to-income ratio, especially if you are planning to apply for a mortgage loan sometime in the future. Lenders consider that the less you owe on other debts, the more money you will have to cover the cost of a monthly mortgage payment. Before applying for a mortgage loan, you might want to work on paying down any auto or student loans you have as a way to lower a high debt-to-income ratio. The key is to not look like you are overloaded with debt.
- Keep on top of your credit report throughout the year. Stagger your requests for your free annual credit report from each of the three credit bureaus at different times. If you order one report every four months, you should always have a fairly accurate idea of where your credit stands.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.