The Best Ways to Improve Credit
So what are the best ways to improve credit and why should consumers strive to make it better? Not long ago, the only interested parties evaluating your credit were lenders. As a result, these lenders were the lone authority who decided if you were responsible enough to take on new credit.
For better or worse, more companies, insurers and employers are focused on financial data in today’s credit environment. Now days, companies have access to individual credit information made available through the major credit reporting agencies. This wider availability of personal financial history may not seem like a big deal if you have a strong credit. However, if you’ve had a misstep in your
financial past, it may be necessary to work toward improving it.
The Cost of Borrowing
Furthermore, the purpose of credit information is to give creditors a way to evaluate the risk you present as a borrower. The more slip-ups in the past, the less likely creditors will extend credit to you in an affordable way. One of the ways lenders offset higher risk borrowers who have lackluster credit is by increasing the cost of borrowing.
Interest rates on lending products are lower for individuals who show a track record of on-time payments and responsible spending. Late payments, accounts in collections, or filing bankruptcy, will result in denial of credit or a far higher interest rate. Over time, a higher interest rate equates to a much higher total cost of borrowing, especially for major purchases.
Availability of Options
A lower credit score and questionable credit history may mean you have fewer options when it comes to securing credit. For instance, mortgage lenders may require more down payment from a borrower with poor credit than someone with excellent credit. Credit card issuers may require a secured account, meaning you must pledge an asset to obtain the line of credit. Individuals with an outstanding credit history have more account options, often with fewer restrictions than those with poor credit.
Nearly 50% of employers now check credit history as a part of the hiring process. A check of your credit allows employers to evaluate if you are responsible with your own financial resources. Poor credit may raise questions about your use of company resources and indicate you may represent some degree of risk.
Whether it be a corporate credit card, supplies, client accounts, or other sensitive information. You may have the qualifications and experience, but without good credit, employers are more likely to select another candidate.
Insurers also evaluate credit as a method for determining the risk of an applicant. For instance, auto insurers may review your credit to understand how much to charge for premiumson a new policy. Most of all, insurance costs are typically higher for those with bad credit compared to others with a spotless credit record.
Renting an Apartment
Landlords and property management companies often look to credit history as part of the application process for renting an apartment. Housing costs represent a significant portion of monthly expenses, requiring landlords to know how well you manage smaller financial responsibilities. If your credit is weak, renting becomes a challenge, requiring more of an initial deposit or a co-signer.
Peace of Mind
Overall, having strong credit is a necessary component of living a financially healthy life. Not only can you obtain credit at a lower cost, you have an easier time showcasing your responsible financial behaviors. Employers, auto insurers, and landlords all look to credit performance that may impact you Financial future. As a result, the best ways to improve credit is to avoid bad credit behavior before meeting these challenges.
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