The most important life decisions are often tied to your credit report. A good credit score can dictate the premium travel credit cards (and by extension, their generous rewards) you are eligible for, the interest rate on your credit card debt, the personal loan you are eligible to take out to cover expenses during a major life event like a wedding, your auto loan or lease and of course, your mortgage amount, down payment and interest rate. Therefore, it is paramount to maintain an excellent credit report as negative items on your credit report can significantly affect your eligibility for the aforementioned lending services.
The fact of the matter is that a higher score will always result in you getting the better bargain. This can be anything from a higher credit line on cards, personal and home loans alongside lower interest rates. Lending services look at your credit score to determine your ability to pay off short and long term debts and the higher the number, the more trust lenders place on your financial health. As lenders want to hedge against potential defaulters, a lower credit score is not considered eligible for a higher credit line or a lower interest rate. This is a form of insurance that lenders make to ensure returns.
Note that a bad credit score and lack of a credit score are often looked at in similar light by lenders. In fact, an individual with a bad score is still eligible for loans (albeit at a higher interest rate) while someone who does not have a credit score is not eligible. The point is that everyone needs to display a credit score at some point of their lives. Even something as mundane as getting a personal cable and internet bundle can require a credit report check by the cable company. Of course, mortgage and auto loans are undertaken by a majority of Americans and a credit report is essential in applications.
A credit score needs to be built and maintained actively by ensuring that balances and loan payments occur on time. The best way to build credit is to get a credit card. Most credit cards report to credit bureaus that monitor an individual’s credit report and provide a score based on said report. Usually, the beginner cards are often secured. This means that the credit limit on the cards is backed by a prepayment by the account holder. As the individual completes regular monthly payments (in full) and maintenance of the total balance, the individual’s score improves and subsequently makes them for more credit cards, lower APRs and higher credit limits. Some of these cards (i.e. rewards cards) also provide significant cash back and points on purchases that can be sued to redeem valuable travel rewards such as flights and hotel stays!
In conclusion, building and keeping up a good credit score (750+ out of 850) is what ensures that we get the best offers and deals. A few pointers that help maintain good credit standing include making on-time payments on a monthly basis, avoiding defaulting on debt, maintaining low balance on your line of credit, not opening too many lines of credit and maintaining a good credit age.
First, set up a payment reminder or auto-pay to ensure timely payment of card balances. Secondly, your credit card balance should not exceed 30 percent of your total limit so as not to negatively affect your score. Lastly, ensure that you do not have too many lines of credit (do not open too many cards). Having too many credit lines makes it difficult to get additional loans or cards. Conversely, keep the oldest credit cards open so that the credit age is maintained.