How Credit Score Affects Your Monthly Bills
This post has been sponsored by CreditRepair.com. All opinions are honestly conveyed and are mine alone.
You probably know that how you pay your monthly bills affects your credit score: on-time payments will increase your credit score, while late payments will cost you extra in fees and lower your credit score. But did you realize that your credit score can also impact the amount that you have to pay for your monthly bills?
What is your credit score?
Your credit score is basically a numerical way for the credit bureaus to express your creditworthiness. Credit scores range from around 300 to 850. The higher your credit score, the better your credit. A higher score tells potential lenders that you are a low risk consumer and will likely payback the credit that they extend to you. A low score tells creditors that you are a higher risk borrower. There are several factors that go into calculating your credit score:
- Length of credit history
- Payment history
- Balance of accounts as compared to credit line
- Amount of times you credit has been pulled within a certain time period
How does your credit score actually affect your monthly bills?
Your credit score will have an impact on the rates that you qualify for when obtaining financing. So when you apply for a new credit card, auto loan, or a mortgage, creditors base the programs and rates that they offer to you based on your credit score. If you have a high credit score, you are going to qualify for a lower rate, which will give you lower monthly payments. If your credit score is low, creditors will give you a higher rate because creditors look at lending you money to you as more of a risk, and this will cause you to have higher monthly payments.
What can you do to improve your score?
If you have a credit score that is less than perfect, or don’t have much of a credit history—don’t worry, there are steps that you can take to help improve your score.
Determine why you need to raise your credit score. Is it for lack of a credit history or because you have a bad credit history?
Lack of credit history
If you lack a credit history, the best thing you can do to build credit is to actually open a credit card and use it to pay monthly bills. Because you are trying to establish a credit history, expect that the credit card that you get approved for may have a small line of credit and a high interest rate. But that’s ok. You don’t have to carry a balance on it from month to month, you can pay it off each month to avoid interest, but every month that you use your credit card, it will report to the credit bureaus. Make sure that you pay the credit card bill on-time each month, and that will also report to the credit bureau—this will build a solid credit history for you. So if you are accustomed to using cash, realize that you will have to utilize credit in order to build a credit history.
If you need to clean up a less-than-perfect credit history, there are several steps that you can take:
Start paying your bills on-time. If it is at all possible, get your bills caught up and current. Sometimes, when you are making late payments, fees may be added in and your next month’s payment isn’t fully going toward that month; in fact, it may be keeping your payments in a consistent cycle of carrying forward an unpaid amount from each month.
Close any old accounts. If you have an old credit card that you no longer use, make sure to close it—as long as it is in good standing and has a zero balance. If you leave old accounts open, it could be a risk for potential identity theft.
Clean up your credit report. Sometimes old collection accounts, liens, or other derogatory information show up on your credit report. Even though creditors are supposed to report when items have been resolved, it doesn’t always happen. So how do you do this? Using services from a company such as CreditRepair.com can help you identify old or erroneous items showing on your credit report, work with you to resolve those issues, and contact the credit bureaus to make sure these items are removed or updated. Getting these incorrect items off your current credit report can increase your score quite quickly.