Credit, especially good, is very important. It affects almost every major buying decision. It can help us get a good rate on a card, car loan or home mortgage. It can also help us when it comes time to sign an apartment lease agreement or maybe even get a new job. But how do you get a great score? And what is the difference between good and bad credit?
To get good credit, you have to have credit. Good credit ratings are gained when you borrow money and pay it back on time and for the full amount. Let’s say you have a credit card from a gas station that you use only for gas because you do not carry a lot of cash around. Each time you go to the station, you use your card to fill up your car. In so doing, you are promising to pay the credit card company back when you get its statement. When the statement arrives, you pay off the amount owed on time. The gas company that issued your card then reports to a credit bureau that you have paid on time and for the right amount. The more good reports that go to the agency, the better your score.
Having a good credit report enables you to borrow more money at better interest rates. Why? Because the banks know that based on your history you are a responsible person. Many potential employers also look at reports as a way to judge a person’s responsibility. Hence, your good score may even help you land a new job.
There is nothing good about having a bad rating with agencies. While a good score helps you qualify for car and home mortgage loans, a bad score could keep you from being able to buy expensive items. It will also keep you from qualifying for credit cards and may possibly hinder your ability to rent a house or apartment.
It is very easy to lose the trust of potential lenders. Bad ratings happen when a person does not pay back money borrowed on time or when that person simply does not pay it back at all. There are varying degrees of bad credit. A person is not automatically given a bad rating if he misses a payment or is late a time or two. However, if a person is continually late or he does not make a payment for several months, his or her rating will be affected and could possible hurt him in the future.
Ratings, even bad ones, can be improved and fixed. Depending on the situation, with responsible finance usage and prompt payments, bad scores can turn into good scores over time. The first step is to understand fully your report. They are available through one of the three major agencies. It is easy to get a free report, and free trials for longer than taking a single glance. Take a look at what is available out there.
Understanding your report will help you determine if there are errors. It will also make you aware of what steps you need to take to improve your rating.