Why a Good Credit Rating Score is Essential

Introduction

Having good credit can help you in many ways. A good credit history can result in getting that dream job, lower interest rates on car loans and mortgages, and better rates on your insurance. With a solid credit rating renters will have an easier time finding an apartment, and homebuyers may be the first to view properties, giving them an inside edge. It can also lower insurance costs.

Main Digest

While insurance represents only about 5 to 7 percent of a typical housing payment, you want to save wherever you can when buying a home. Many insurance companies give discounts on homeowners policies for those with good credit.

Credit Scores Verses Insurance Scores

Insurance scores and credit scores differ.

Credit scores predict credit delinquency, while insurance scores predict insurance losses. Both are calculated from the information in a credit report, such as outstanding debt, bankruptcies, length of credit history, collections, new applications for credit, number of credit accounts in use, and timeliness of debt repayment.

Insurers or scoring agencies then calculate the insurance or credit score by assigning weights to the credit report's favorable or unfavorable information. Income, ethnic group, age, gender, disability, religion, address, marital status, and nationality are not considered when calculating an insurance score.

Credit and insurance scores measure how well individuals manage their money - not how much they make. And actuarial studies show that how a person manages financial affairs is a good predictor of insurance claims. Statistically, people with a low insurance score are more likely to file a claim.

The good news is that most people have good credit and will pay less for insurance than they would if insurance scores weren't considered.

Building and Maintaining Good Credit History

• Pay bills on time: The best way to build a solid credit score is to always pay your bills on time in full each month. Your goal should be to build a long history of reliable bill-paying behavior.
• Limit the number of credit cards: Have up to three or four credit cards and hold on to them for a long period.
• Keep balances low and use your available credit at most 30 percent: This means resisting the temptation to accept pre-approved card offers in the mail or retail credit cards even though a discount may be available for opening a new account.
• Check your credit report annually: Look for errors and correct them as soon as possible. By law, you are entitled to one free credit report from each of the three reporting agencies once a year.

The Fair Credit Reporting Act (FCRA) requires each nationwide consumer reporting company - Equifax, Experian, and TransUnion - to provide you with a free copy of your credit report, at your request, once every 12 months. For more information, go to the Federal Trade Commission's Web site.

If you find yourself unable to meet your financial obligations, contact your creditors to see if you can negotiate a more manageable payment schedule. You might avoid a "Bad Debt" report to the credit bureau by contacting your creditors as soon as problems arise. Also, could you work with a legitimate credit counselor? The sooner you can manage your credit and pay on time, the better your credit report will be over time.

Helpful Resources

• Obtaining Money Quickly Without Good Credit
• Use Prepaid Credit Cards to Rebuild Your Credit Score
• Debt Relief Solutions: Practical Steps to Get Out of Debt
• BillFloat: Providing Extended Bill Payment Time to Help You Manage Your Expenses

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Cite This Page (APA): Langtree, I. C. (2014, August 22 - Last revised: 2023, November 30). Why a Good Credit Rating Score is Essential. Disabled World. Retrieved September 13, 2024 from www.disabled-world.com/disability/finance/credit-score.php

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