Tuesday, 14 July 2020

Best Tips For Getting A Better Credit Score

We all know that a lower than excellent credit score is bad, but how much is it actually costing you? I was talking to one of my sisters the other day and she mentioned how she got a cheaper price for something because she has a good credit score. Yes, you really are being judged based on your credit score. Not by me, though. I like you no matter how bad your credit score is. But this got me thinking about how important it is to have a good credit score. So in this article, I am going to go over four ways having a bad credit score can hurt you and in most cases, cost you a ton of money. As I go through this list, I am going to layout actual numbers to help you understand the true cost. One of these absolutely blew my mind and you need to know about it. 

Having a good or bad credit score is about as black and white as it gets. You either have it, or you don't. I know they have ranged from very poor to exceptional, but I would say that anything less than a 740, which is technically a very good credit score, would be considered very poor. Luckily, a very poor credit score is something that's easily fixable. Depending on how bad it is, it could take longer, but the important part is that you have the opportunity to increase it starting today. 

Pay Your Bills On Time

I know this should go without saying, but seriously, this is a huge deal. If you are someone who's very forgetful, then set your credit card to be paid automatically every single month. I have one of the credit cards that for some reason I can't put on Autopay, I don't know why, but I can't, so I have a reminder set on my phone that goes off every single month on a Sunday night. Since I know that I am not usually doing anything Sunday nights, it makes doing it that much easier. And if I am, then I just log in to the app on my phone and pay the bill right away.

Don't Close Account Ever

Another way to easily keep your credit score up is by not closing down all the credit card accounts. A part of your credit score is based on the average age of your credit card accounts. So if you have a credit card that's 10 or 15-years-old and you cancel it, then your average credit age will decrease, which hurts your overall score. Just like wine and whiskey, the older the better. Allegedly, though, because I think that they both taste pretty darn gross no matter how old they are. Sometimes credit card companies will automatically close accounts if they have not been used for long periods of time. If you get a notice in the mail from a credit card company that they are going to close your account due to inactivity, then charge something to that card to make sure that this does not happen. A good way to make sure that you are still actively using an old credit card is you just put a small recurring payment on that card, kind of like Netflix or something like that. Just make sure to make that payment every single month, though. 

Based on the Experian report, the average credit score increases with age, which is a good thing because hopefully, we all get smarter as we get older, or it just tells us that by that time we are forced to pay all of the bills that we racked up in our younger years. Another interesting stat that I found was that the average credit score increased the more money people made. 

So basically, try to make as much money as you possibly can. Look, having a good credit score tells the outside world, how responsible and reliable you are. It is a great indicator as to whether, or not you have a good handle on your finances. I know that some people will tell you that you do not need a credit score, but go ahead and let yours hit that big zero, and tell me how things work out for you over the next 10 or 20 years. It is not necessarily a number that tells the outside world that you love being in debt. It makes your life so much easier and gives you more options. Think of your credit score like your adult report card. It tells you your personal finance story and gives some insight into what your relationship with money has been in the past. 

The Cost Of A Bad Credit Score

You Become A Liability To Landlords

The vast majority of landlords will run your credit report before they let you move into any of their properties. This might seem like it's not fair, but put yourself in their shoes for a minute. If you had a large investment like that, then wouldn't you want a little assurance that the potential renter had a good track record with paying their bills in the past? My sister recently told me that if she did not have a good credit score, then she was going to be charged an extra $700 for her security deposit on top of the $200 she had already put down. And her monthly rent would have increased by an extra $30 per month. This absolutely blew my mind when she told me that. Someone with a less than ideal credit score is not a protected class, so landlords have the right to do this. Who knows? They may not even give you a heads up that you were getting charged more due to your bad credit score, so you could be paying way more and not even realize it. 

"Special Pricing" For Cars (not the good kind)

Another time having a low credit score can hurt you is when you purchase a car. Now, of course, you are going to get a higher interest rate if you finance that car, but the price of your car is most likely going to be increased without you realizing it. When I was recently shopping for a car, I used the whole process as a way to gain as much insight as to how they could be taken advantage of people like you and me and found out something like this. Like I said, you are going to automatically have to pay a higher interest rate the lower your credit score is. But they also automatically hike up the price of cars, as well, since you are a riskier borrower. You are basically getting double hit on how much you are paying for a car, even if you were someone who has a decent credit score. They could still have that special finance pricing baked into the cost of the car. On a car I looked at, the price was bumped up by an extra $700 and they were not willing to go down on it. And I was, of course, paying cash for that car, too. They were just stupid enough to leave that extra cost on that car price and expect someone like me with an excellent credit score and paying with cash to pay for it. 

The lesson here is that car dealerships will always be scumbags no matter what. There, I said it and I do not feel bad about it. The added cost of a car, if you have a bad credit score, can range from anywhere between $1,400 and almost $6,000. 

Home Purchase Is More Expensive (two different ways)

You are going to pay a lot more for a mortgage if you have a poor credit score. Almost tens of thousands of dollars more. Most people want to eventually own a home, but lenders need to know that you will be able to pay the money back. Even if you don't want to own a home, but eventually want to start investing in real estate, this will really impact your ability to buy large assets for investing in the future. I honestly never realized how much extra you are actually paying interest with the poor credit score. Let's look at an example. 

On a $200,000, 30 years fixed mortgage, someone with excellent credit would get a rate of about 4.322 APR and have a monthly payment of $992. The total interest that they would pay over those 30 years would be a little over $157,000. For someone with a credit score in the range of 620 to 639, borrowing the same $200,000 would have a monthly payment of about $1,188 and a rate of 5.991% The total interest this person would pay over those 30 years is over $227,000. That's an extra $70,000! The worst your credit score, the most it is going to cost you. 

Keep in mind that lenders don't have to give you money for a home if your credit is shat. They could deny you altogether. That's why I mentioned at the very beginning that anything less than a very good credit score, so anything below a 740 would be considered a bad credit score. 

Passed Up For A Job

You have the potential to be denied a job because of a poor credit score. I was really shocked about this one so I had to do a little bit more digging and talked to some people that I know in the HR field just to make sure that this was not one of those old wives' tales. I found out that this is very factual. Now, keep in mind that this is all based on a company that you apply for a job with, and not every business checks it. I am assuming this is more likely in the financial space, but one of my past colleagues who works for a different company that is not in a financial space told me that they would check the credit scores of the people that they hire. She did mention that if you have a bad credit score and the job is between you and one other person, then this would be baked into the final decision. So credit score is not the only reason someone would not hire you because there's a lot of things that they consider. But it is a part of those many pieces to the puzzle that give them an idea of if you were going to be a good fit for their company or not. Think about it. If you are someone who has made bad choices with your finances, then you may be a lot more likely to make bad decisions on the job. 

It is tough to put an exact number on this one, but if you were passed up for an $80,000 per year job and you end up getting a job that is $60,000 per year, then you are essentially out $20,000 per year. The cost of this one could end up being astronomical, especially if you want to consider how much you lose in compound interest if you had invested that money that you would have been making. 

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