Most people know that good credit is key to financial health. Few realize that now more than ever strong credit is important. As the economy struggles, you’ll need to work harder to prevent a credit score downward spiral.
The “Secret Sauce” Formula Is Still Secret
Consumer advocates are angry that the algorithms used to determine credit scores are still top secret. You might be peeved about this, too. But take note: until very recently you weren’t even allowed to see your credit score! Can you imagine how unfair that was for many years? The Fair Credit Reporting Act (FCRA) was established in 1996 and revised in 2004. The system is unjust, but, at least today you can access your report for free once a year. A report will allow you to correct any mistakes … but you have to pay to see your score.
Tightened Credit
Banks are nervously tightening their grip when it comes to lending funds. Why should they lend to anyone except the people with pristine credit? They should lend us the taxpayer money used for the bailouts—but will they? Similarly, credit card companies are pulling back credit limits in an attempt to control increasing numbers of people unable to pay their credit cards.
Bottom line: banks and credit card companies are looking after their best interest. Their best interest is to lend money to people with a proven repayment track record. Therefore you must do what you can to protect or increase your credit score.
Everything’s Connected
Your credit score is connected in multiple areas of your life. It follows you as you search for an apartment or take a mortgage to buy a home. A credit score can be legally obtained by potential employers or insurers doing due diligence on applicants. If you neglect your credit report and its score you can quickly find yourself paying more for rental deposits, car insurance, mortgages, and a host of other things. You can literally spend hundreds, perhaps thousands of dollars more each year based on a bad score or mistakes on your report. Therefore, it is important to spend a few minutes each year evaluating your report from each of the three credit agencies.
Bad Credit?
If you have poor credit or a report filled with dozens of errors, don’t despair. While no one knows the exact methods used to calculate a score, there are some proven strategies you can employ to rebuild. First and foremost, you must check your report and correct any mistakes.
Finally, it is good to consider an analogy. You can’t control the weather, but you can control what you wear. Likewise, you can’t control the economy, but you can control how you shore up your most critical basics: your credit report and credit score.
