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The Benefits of Having Good Credit (and How To Achieve It)

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Did you know one in eight Americans doesn’t know their credit score?

If you’re among these people, you’re either rich, which means you don’t have to worry about credit cards and loans, or you are yet to take out any of these credit facilities.

If you’re in the first group, lucky you! But if you’re in the second group, soon enough you’ll learn about credit histories and credit scores.

In your life as an adult, there are fewer things as impactful as good credit. Wondering how so?

In this article, we’re sharing the benefits of having good credit, as well as a couple of tips here and there on how to improve your credit.

But first off:

What Is Good Credit?

In the categorization of credit scores, we have:

  • Poor credit
  • Bad credit
  • Good credit
  • Excellent credit.

If you’re unfamiliar with the credit scoring system, the FICO score, which is the most widely used, runs from 300 to 850. Any score above 670 is generally considered good credit.

So, get a copy of your credit report and see where you stand.

Now that you know what good credit is, let’s focus on the benefits of good credit.

Get Loans at the Best Rates

When you take out a loan, the lender expects you to pay it back along with the interest. The amount of interest you will pay directly depends on the interest rate charged on the loan.

In the U.S., the average interest rate on a personal loan is 9 percent. However, the rate you’re charged on your loan or credit card can be as low as 4 percent or as high as 36 percent – or even higher.

What determines the rate your get? You guessed it. Your credit score.

When you have good credit, it’s far easier to get an interest rate that’s equal to the market average or even lower. But if you’ve got bad or poor credit, you’ll be slapped with a very high rate. A high rate does more than make a loan expensive. It can effectively put you in a debt cycle that might never end.

If you’re planning to take out a mortgage, this is where you need to get the best rate. With good credit, lenders will reward you.

Refinancing Mortgages

Speaking of mortgages, if you have one, you might be considering refinancing it. This is the process of replacing an existing mortgage with a new one, hopefully, and typically, with better terms, such as a lower interest rate.

For instance, let’s say you have a variable-rate mortgage that you want to convert into a fixed-rate mortgage. Or you want to get a lower rate on your fixed-rate loan because market rates have fallen substantially since you got your mortgage.

Refinancing is an ideal way to lower your mortgage payments, but getting approved isn’t guaranteed. You must meet a number of conditions, including good credit. Check out these refinancing tips to boost your prospects.

With bad credit, your application will certainly be rejected. In fact, bad credit can keep you from getting approved for any kind of loan that requires good credit.

Rental Housing

The number of people renting has been on the rise, reaching a 50-year high in 2017.

If you’re looking to rent a house, you don’t expect that a landlord will turn you down, right? As long as you can pay the rent and the security deposit, you should be good.

Well, wrong!

Landlords perform credit checks on tenancy applicants. They want to know what your credit history says, and they can use it to determine whether you’ll be a good tenant. A landlord can certainly reject your application because of bad or poor credit.

These are the top benefits of having good credit, but there are more. For instance, you might need good credit for a telephone service provider to approve you for a postpaid plan.

How to Achieve Good Credit

No one is born with good credit. We all build credit, the same way we can ruin it.

If you’ve recently become credit-active or you ruined your credit, there are steps you can take to achieve good credit. They include:

Pay Your Loans/Credit Card Balances on Time

It’s important to pay bills like rent on time, but what matters most is your loans and credit card balances. Pay those on time and you’ll build a strong credit history. Your score will also climb along.

The reason people have bad credit is they defaulted on loans or let their card balances rollover. Doing this will only undo the hard work you’ve put into building a positive credit history.

Low Credit Utilization Rate

Credit utilization rate is the ratio of the amount of money you spend compared to your total credit.

For example, if you’ve got a $1,000 revolving credit, spending $500 a month means your utilization rate is 50 percent. When you want to build good credit, your goal should be to keep your utilization rate below 30 percent, consistently.

Pay Off Loans in Default

Have you defaulted on your loans before?

If yes, prioritize paying them off. With default accounts on your credit report, there’s only so much you can do to build good credit. But once you pay them off, you’ll see your score rise by some points.

Here are more ways to build good credit.

Reap the Benefits of Having Good Credit

A credit score isn’t just a number. It’s a statement of your financial prudence.

As we’ve demonstrated, the benefits of having good credit cannot be overstated. Your journey to financial freedom starts with good credit. What’s more, we’ve told you what you can do to boost your credit.

Explore our lifestyle blog for more financial tips and advice.

 

 

 

 

 

Ben Stern wrote this article on behalf of FreeUp. FreeUp is the fastest-growing freelance marketplace in the US. FreeUp only accepts the top 1% of freelance applicants. Click here to get access to the top freelancers in the world.  

 

 

 

 

New Haven Register and Hearst partners may earn revenue when readers click affiliate links in this article.



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Bad Credit

3 credit habits that you need to break

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Are you using your credit card responsibly? Or do you have a few bad habits? Take a look at three common bad habits that people have with their credit cards and the best ways to stop doing them.

Habit 1: Pushing the limits

The first bad credit habit is pushing your outstanding balance close to its limit. What’s wrong with that? The first problem is that you’re giving yourself a larger debt load to contend with every month — one that accumulates interest the longer that it sits. It could be very difficult to pay down, and it could even lead to you maxing out your card.

The second problem with this habit is that it leaves you vulnerable to emergencies. You’ve taken up the majority of your available credit, so you can’t depend on it for unexpected payments. What if you need to pay for an urgent repair and there’s not enough room on your card? What can you do?

To avoid that difficult situation, you could apply for an online loan to help you cover the emergency costs and move forward. See how you can apply for an online loan in Ohio when you have no other safety nets to fall back on. It’s important that you only turn to this solution when you’re dealing with an emergency. It’s not for everyday purchases or small budgeting mistakes.

In the meantime, you should try your best to keep your credit utilization at 30% or lower — this means that your balance should be below the halfway point of your limit.

Habit 2: Paying the minimum

You pay your credit card bills on time, but you only give the minimum payment. While this habit can stop you from racking up late fees and penalties, it can still get you into hot water if you’re not careful.

Only paying the minimum for your bill will make it very difficult for you to whittle down the balance, especially when you’re continuing to charge expenses on your card. You’re only taking $20-$25 off a growing pile.

So, what can you do? If you’re paying this amount by choice, stop it — you’re only making things harder for yourself down the line. If you’re paying this amount because you don’t have any more funds, look at your budget to see whether you can cut your monthly costs to get more savings and use them to tackle your balance.

Habit 3: Using it for every single expense

You don’t need to put every single expense on your credit card. Your morning coffee? Your afternoon snack? Putting these small, everyday expenses on your card is a habit that can make your balance climb quickly.

You also don’t want to put some very important expenses on there, like mortgage payments. For one, these payments are large and will take up a significant amount of your credit. Secondly, if you need to use a credit card to make these payments on time, you need to reinvestigate your budget to see whether you can actually afford your living space.

So, what you should you do? Use a debit card, cash or checks to pay for the items above. Only put expenses on your credit card that you’re positive you can pay off in a reasonable timeframe.

Don’t let these bad habits drag you down and get you into financial trouble. Break them now, before it’s too late.

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Free credit reports have been extended; here’s why it’s important to check yours regularly

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Checking your credit could save you from identity theft. (iStock)

Typically, you’d be able to check your credit report — at least for free — just once annually through each of the three major credit reporting agencies. But thanks to the coronavirus pandemic, credit reports are now more accessible than ever.

Credit reporting companies Equifax, Experian and TransUnion are all offering  free credit reports weekly through April 20, 2022.

The move means better insight into your financial health during what, for most, is an economically challenging time. According to experts, it might also be a time that’s ripe for at-risk personal information and identity theft, too — even more reason consumers should be checking their credit on the regular.

HOW OFTEN DOES YOUR CREDIT SCORE CHANGE?

Have you checked your annual credit lately? If not, here’s what you need to know about these free nationwide credit reports and how to get them. If you’re not sure where you fit on the credit score spectrum, you may want to start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.

Free credit reports for all?

The nation’s three credit bureaus initially started offering free weekly credit reporting last year, just after the pandemic began. In early March, they announced they’d extended the offer for another year, this time through April 20, 2022.

To request your free credit reports and access copies, you can go to AnnualCreditReport.com and provide some basic information to verify your identity (things like your date of birth, Social Security Number, and address).

Once your report is ready, you should see a detailed list of all open and closed accounts in your name, your payment history, recent credit activity and more.

5 BENEFITS OF HAVING A GOOD CREDIT SCORE

Protect yourself from identity theft

There are many reasons why checking your credit activity is important, but chief among them? That’d be the prevalence of data breaches in today’s world — not to mention the risk of identity theft they come with.

“In the past, it was perfectly acceptable for people to check their credit history once a year, but now with security breaches happening on a regular basis, consumers should be monitoring their credit more closely than ever,” said Clint Lotz, president and founder of TrackStar.ai, a predictive credit technology firm.

Lotz said the Equifax breach — which exposed over 147 million Americans’ personal information in mid-July 2017 — is the perfect example of why watching your credit report is important as far as identity theft protection goes. The pandemic, he said, adds an extra layer of risk to things.

“It took them [Equifax] months before they even realized they had been hacked, and considering that they hold files on hundreds of millions of Americans, it’s fair to say that many identities were stolen by the time they caught up to it,” Lotz said. “With many of us worrying about very serious issues not related to our credit, it’s a prime time for that stolen data to be put to work by bad actors in slow, methodical ways and in the hopes that nobody notices it.”

More reasons to check your credit

Checking your credit health often isn’t just good for detecting fraud alerts and to protect your identity, though. You can also monitor your report for errors — things like inaccurately reported late payments, for example — and then dispute those with the credit bureau.

If the error gets corrected, it could improve your credit score and make a jump from bad credit to a FICO score that’s more favorable. Not sure of your credit score? Head to Credible to check your score without negatively impacting it.

WHAT IS CREDIT MONITORING, AND HOW DOES IT WORK?

You can also use your credit reports and scores to monitor your financial habits — like the timeliness of your payments or how much debt you have left to pay off. Both of these factors can play a big role in your score, as well as how likely you are to get approved for loans, credit cards and other items.

“If you’re taking out a loan, getting insurance or even applying for a new job, checking your credit will allow you to see an overview of what would be seen by others looking at your credit,” said Leslie Tayne, a debt relief attorney with the Tayne Law Group. “Staying up-to-date on your credit reports and information allows you to know exactly where you need to improve.”

Want to be sure your credit is stellar before applying for a loan or insurance policy? Consider Credible’s partner product Experian Boost, which lets you use positive payment history on utilities, streaming and other bills to improve your credit score.

Set up a monitoring service, too

Though checking your credit reports manually is smart, you should also consider signing up for a credit monitoring service. These consumer financial services check your credit information and score regularly and alert you of any changes.

IS IT WORTH PAYING FOR CREDIT MONITORING?

If you’re interested in monitoring your credit or improving your score, head to Credible and learn more about how Experian can help. You can also use Experian Boost to get credit for on-time bill payments.

Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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Do Personal Loans Have Penalty APRs?

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

When you make your credit card payment late, you’re often subject to late fees and a penalty APR, which is a temporary spike in your interest rate.

The Blue Cash Preferred® Card from American Express, for instance, has a 13.99% to 23.99% variable APR, but the penalty APR is a variable 29.99% (see rates and fees). Penalty APRs usually last for at least six months, but card issuers often reserve the right to extend them — especially when you continue making late payments. A look at the terms for the Citi® Double Cash Card show us that the “penalty APR may apply indefinitely.”

Penalty APRs are certainly not a trap you want to fall into, but it’s not something you usually have to worry about if you have a personal loan. Personal loan lenders can, however, charge late fees upwards of $39 per late payment. Whether your loan charges late fees all depends on how good of a loan you qualify for, and that comes down to your credit score, borrowing history and ability to make your payments.

Personal loans also tend to charge lower interest rates than credit cards, too. The average personal loan interest rate for two-year loans is currently 9.46% according to Q1 2021 data from the Federal Reserve, compared to 15.91% for credit cards.

Typically, interest rates for personal loans range between roughly 2.49% and 24%, but personal loans for applicants with bad credit can come with even higher APR — so do your research before applying.

Other common personal loan fees include:

  1. Interest: The monthly charge you pay to borrow money
  2. Origination fee: A one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs
  3. Late fee: A one-time fee charged for each payment that you fail to make by the due date or within your grace period
  4. Early payoff penalty: A fee incurred when you pay off your balance faster than planned (because the lender misses out on months of expected interest payments)

As you can see, personal loans can be costly, even without a penalty APR. It’s obviously best to avoid paying extra fees whenever possible. That’s easier to do when you have a good to excellent credit score, since you’ll qualify for better loan options.

Select has a free tool to help match you with personal loan offers without damaging your credit score.

None of the loans on our best personal loan list charge origination fees or early payoff penalties, but some may charge late fees.

Our top picks for best personal loans

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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