If the world of credit feels like a mystery to you, we’ve laid out a basic guide here to simplify things. We explain some basic terms and talk about how your credit affects your future, as well as some simple things you can try if you need to improve your credit score.
Credit Is Important: Here’s Why
It first needs to be stated: credit is very important. When we refer to credit here, we may be talking about your credit score, which is a score given to you by federal credit bureaus based on your credit history, or we may be talking about your line of credit, which is the amount of spending power a particular credit agency gives you. Your credit score, in particular, can have a major impact on your life. If you hope to get a job, buy a home, start a business, or even get married, your credit score may come into play. Therefore, knowing what your credit history is and how to improve it is going to be crucial in making sure you have a healthy financial future . Fortunately, getting all of this sorted out is a pretty straight forward process.
Credit Can Create Debt
It may seem obvious, but it is imperative that you keep in mind that credit can create debt—if you use your lines of credit and don’t pay them off, that is. Many credit cards charge high interest rates, and those interest rates roll. So the 15 percent interest you pay one month turns into a higher sum the next month, as you are now paying interest on both the original amount you charged as well as last month’s interest. It creates a snowball effect that can lead many people into deep debt. This is why it is so crucial that you stay on top of those charges and pay them off in time, and in full. Paying only the minimum payment is going to accrue that interest and lead to deeper debt down the road, which will negatively affect your credit score.
Others Can See and Share Your Credit Score
You may not know this, but your credit score is something that other, influential people might seek to see. Potential employers, banks considering giving you a loan, even potential landlords may be able to access your records and use that info to determine how to move forward on applications. Because of this, you’ll want to make sure your credit score is as high as possible, so it doesn’t cost you a big new job promotion or the new home of your dreams.
How To See Your Credit History
It is federal law that you be able to access your credit records from the three main credit bureaus, and there are a number of services online that you can do this through, for free. Do a bit of research and use a site that appeals to you—from there you just need to create a simple account and you will be able to see your score as well as your history. Again, you won’t be charged for this . Seeing your history and staying updated on where your score stands is crucial in helping establish good credit. You don’t want to ignore this step, this isn’t something that gets better the longer you leave it out of mind.
It’s Not Expensive to Fix
So what happens if you discover you have poor credit? As previously discussed, having good credit is ideal, it’s something that can influence so many aspects of your life. But the good news is, it is totally possible to bring your credit score back up, and it’s not something that typically costs a lot of money. The first step to take is paying off any credit card debt you may have, and of course this takes money. But you can consolidate that debt and try to negotiate a lower interest rate to bring costs down. After that, taking steps like opening good lines of credit and paying it off promptly will help quickly move your credit score up into the healthy range.
As mentioned above, opening good lines of credit can up your score, and likewise closing credit card accounts can hurt it. As such, it is key to pay off that debt but keep the credit accounts open. This looks more positively on your credit history and will help increase your score. Also key to know—negative credit items will eventually be removed from your credit report, they won’t stay visible forever as these line items do expire over time .
Moving Forward with Good Credit
Equipping yourself with good credit knowledge can be half the battle in this financial race. Once you understand the steps you need to take, you can set yourself up for success by doing practical things to improve your credit. Stick to it, and over time you should see real results. Your credit can greatly impact your life, so you owe it to yourself to tend to this area of your finances. A little time and care now can pay off big time in the long run.
If you still have more questions, don’t hesitate to research the topic further. Good credit isn’t something that can be fixed in a day, but a multi-pronged approach should start to move that needle in the right direction.