By Jared Berardi
I am thinking of a specific number, and that number happens to be a 720. That
number represents my credit rating and the better my personal credit rating, the better
my chances are to get approved for a loan with the lowest possible rate. Does this
statement sound familiar to you? A similar representation is presented through a
commercial by freecreditreport.com. This tagline is targeted towards consumers with
the intentions of helping people become more aware of their credit rating. Your
individual credit rating is vital and will play many important roles throughout life
experiences.
So what’s really behind your credit score? First off, it is important to
understand that your credit rating is a numerical representation of your overall
creditworthiness. Your credit file is composed of five important categories. Thirty
five percent of your credit score is determined through your payment history on
applicable credit accounts.
The most common credit accounts are credit cards,
automobile loans, mortgages, department charge cards, and personal loans.
To maintain this section in your credit file, simple, pay your bills consistently
on time. This sounds easy right? According to Fair Isaac, near fifty percent of
all consumers have been behind on a payment by 30 or more days! The next
most important factor of your credit rating is the amount that you owe on your
credit accounts. This part of your credit rating accounts for thirty percent of your score.
For example, if you have high revolving balances on your credit cards
or line of credits, this can have a negative impact on your rating and lenders look at you
as a higher risk. Length of credit history accounts for fifteen percent of your overall
rating. It is important to keep open your oldest credit accounts and not open a lot of credit
accounts within the same time frame.
Your length of credit history is calculated by
adding together the number of years all of your accounts have been opened, then divide
that amount by the number of accounts you have. The longer your established credit
history the better.
The fourth section of your credit rating is new and accounts for ten
percent of your rating. You do not want too open to many new accounts at once or have
periodic credit pulls. Both scenarios can result in lowering your score. For this section, it
is alright to open a reasonable amount of credit accounts and pulling your own credit
report does not hurt your rating.
The last ten percent of your credit rating is composed
of the types of credit that you use. For example, having credit cards and credit lines can
improve your score by having periodic use and repayment history. It is important to
maintain credit use so you have a steady credit history and not run into any problems
with having limited credit history.
Your credit rating has many important factors to consider when you are managing
your account history. By understanding these sections of your credit rating, you will be
educated when it comes to making major purchases in your lifetime. For example,
purchasing a Home or Automobile is one the most important financial decisions that you
will have to make in your lifetime. I am using a local credit union’s rates, Ent Federal
Credit Union, to analyze how your credit rating comes into perspective when it comes to
your money.
According to Ent Federal Credit Union, their featured automobile rates on a
2006 year vehicle with a 60-month term range from 6.25% to 13.24% depending on your
credit rating. Considering an automobile loan in the amount of $20,000 with a 6.25%
interest rate with a 60-month term, you will have an estimated monthly payment of
$389. On the flip side, if you take out a loan in the amount of $20,000 with a
13.24% interest rate with a 60-month term, you will have an estimated monthly payment
of $457.00. That is a $68 difference in your monthly payment and you will save
over $4000.00 in interest charges over the term of the loan.
Not only can you save large amounts of money with maintaining a good credit
rating, you can give yourself peace of mind and be confident that you will not be turned
down for a future loan. According to Experian, an individual should
request a copy of his or her credit report at least one time per year. With Fraud and Identity
theft cases being at an all time high, you need to make sure that your personal credit is
not being used fraudulently.
As we have concluded, your credit plays many important roles throughout
life experiences and when it comes to your money and security! I would ask you to
take a few minutes out of your day to research your personal credit. You can go
online and access your credit report through:
freecreditreport.com,
experian.com,
equifax.com,
transunion.com, or
myfico.com.
(Back to top)
