Good Credit Saves Money

One number can save you a lot of money, and it’s not how much is in your paycheck or bank account. It’s your credit score and a high one can be as good as money in the bank.

In Proverbs 22, Solomon writes, “A good name is more desirable than great riches, to be esteemed is better than silver or gold.”

As a follower of Christ, you always want to act in a godly and righteous manner so that others will hold you in high regard. Your good name gives glory to God, Whom you serve.

In the financial world, a good credit score is a good name, and it literally can mean having more silver and gold in your pocket. It’s how lenders judge you. The higher your credit score, the lower the interest rate you’ll be offered when you apply for loans, credit cards and mortgages. That much you probably knew.

What many people don’t realize however, is that these days, your credit score may also determine what you have to pay for home and auto insurance. The higher your score, the less you pay.

Employers are also using candidates’ credit scores in their hiring decisions at an increasing rate. A candidate with a high credit score might be offered a job over someone else, all other qualifications being equal. That also translates into more money in your pocket.

To build or raise your credit score, you need a basic understanding of how the credit system works. You actually have several different scores calculated by different scoring companies, but here we’ll concentrate on your FICO credit score, since it’s the one most lenders use.

Your FICO score is based on the information held in your credit reports at the three credit bureaus, Experian, TransUnion and Equifax and ranges from 300 to 850.

Anything lower than 580 is poor. 580 to 670 is fair, 670 to 740 is good, 740 to 800 is very good, and anything above 800 is exceptional. Your score indicates the likelihood that you’ll repay money that’s loaned to you.

That number is based on five factors:

1. Your payment history and whether you’ve made any late payments
2. The length of time you’ve had each account
3. Your balances versus your available credit
4. The types of accounts you have
5. The number of new accounts.

But what if you don’t have any of those items in your credit report? How do you get credit, if you don’t have any credit history?

You can do that by opening a secured credit card. Many banks and card issuers offer them. A secured card has a credit limit equal to the amount of money you deposit in a designated savings account, and the bank or issuer uses those funds as collateral. It will then allow you to make charges on the card up to that limit, but don’t. Instead, make just one routine (budgeted) charge a month and then pay it off in full when the bill comes in.

Make sure the card is one where the bank reports your activity to the credit bureaus. That’s usually the case with secured cards, but check. Once you start using the card as described, you begin to build a solid credit history.

You can also get something called a “credit builder loan.” If you go to the website Self.inc, you’ll find help to set one up. You can also get this type of loan from some banks and credit unions.

Here’s how it works: You apply for and get the loan, usually the amount is from $300 to $1000, When approved, you don’t actually get the money. It’s put into a CD and you make monthly payments that are reported to the credit bureaus as loan payments, building your credit history in the process.

When the loan is paid off, you get the money you’ve paid into the CD plus a little interest, minus a fee the bank charges. It works much the same as a secured credit card, but for an installment loan. Having both would build a favorable credit history and score even faster.

You can also become an authorized user of someone else’s credit card to build a credit history. Usually that’s a parent or some other family member. Just make sure that person has a solid credit score.

To gain a credit history as an authorized user of a credit card, you don’t necessarily have to use it. As long as the primary owner uses it and makes regular, on-time payments, you’ll get the benefit of good history on your credit report.

If you have a low credit score, the steps to increase it are simple. Make all of your payments on time. Pay more than the minimum due each month to more rapidly reduce the amount owed versus your available credit. For credit cards, you always want that ratio to be below 30%. As you do these things, your score will begin to rise. Just remember that it takes time to build or establish a good credit rating, so you have to be patient.

You can also listen to the related podcast on this topic.