When it comes to building and maintaining a strong credit rating, new data shows that there is a great deal of room for improvement. Many Americans are aware that a low credit rating can yield negative consequences, such as difficulties obtaining a loan, being assigned unfavorable interest rates and receiving higher insurance premiums. However, many fail to understand basic tasks they can take to monitor the strength of their rating and make improvements to their score.
FreeCreditScore.com released the results of a survey, which shows that 42 percent of respondents check their credit scores every one to two years, and another 22 percent never check their credit ratings. As a result, many may not know where they stand credit-wise or be in a position to make improvements to seemingly harmless financial behaviors that are impacting their score, such as paying off large credit card debt. Here are some basic credit literacy tips to help individuals make better decisions. The first is to check credit scores often. Not only can staying abreast of one’s score shed insight into how their credit behaviors are impacting their rating, but it can also be a telltale sign of identity theft if their score plummets suddenly.
Consumers are also urged to pull scores before making any significant purchases, such as a home, a vehicle or even insurance (if they live in a state that factors in scores to set premiums). This will help individuals determine which loan products they may best qualify for and give them time to make changes to their spending behaviors if necessary.
Improving a credit score
There are a lot of negative personal finance indicators highlighted in the news. While there are lessons to be learned in those statistics, Americans have improved their credit management, debt reduction and payment consistency. It’s been – and continues to be – a hard road. While being diligent about credit is important, it is not a substitute for making positive changes that influence a consumer’s rating. For example, paying all bills on time is crucial, as payment history makes up the largest percentage of a consumer’s score. It’s also imperative that individuals keep their revolving debt low and preferably avoid incurring balances that exceed 30 percent of their available credit. Another rule to abide by is avoiding excessive applications for credit, which can also drive down an individual’s score.