Having a good credit score could make this even better news.
Many of us who live in Charlotte used to assume that because we live in a banking town, credit was easy to get. As the past year has unfolded, many of us has discovered that nothing could be further from the truth. And while we many not be trying to open a business or something else on a grander scale, the credit crunch affects us dearly as we think about buying houses, getting car loans, and just managing our credit. We want to try to be the best "borrowers" we can be so we can show banks and other lending institutions that we're responsible people. Banks and other companies want a way to determine how good we are about paying back money.
Enter credit reports. Three large companies (TransUnion, EquiFax, and Experian) keep track of almost everything that has to do with your track record of paying back those you owe. Each credit report details (hopefully correctly) things like how many accounts you have open, how much you owe on each of them, if your payments are on-time, etc. Reading and understanding them can be a bit like translating Egyptian hieroglyphics, but when you understand how they're used, I think you'll see the process is worth your while.
When a company is deciding if they'll lend you money to buy a house or a car (or something less significant), they'll take a look at your credit report and evaluate your credit history. Many times they do this by looking at a three-digit number (between 300 and 850) that is automatically generated for them based on the information on your credit report. Basically, if your credit report shows you've had good credit history your number will be higher and vice-versa. The difference between a good and bad score will at most mean whether you will be able to get a loan or not, but also it will dictate how much you will pay for your loan. For instance, someone with a high credit score (750 or above) looking to buy a house might get a mortgage at 5.5%, whereas someone with a low credit score (550 or below) will, on average, be able to get the same house at a 9.5% rate. What's the bottom line? The person with the poor credit score will pay over $300 per month and over $110,000 more during the life of the loan in interest! Bottom line - know your credit history, make sure it's accurate, and be as responsible you can be when you're borrowing from others.
Ready to get started? Despite the mind-numbing jingles you'll here on TV, the only place to get a free credit report is at www.annualcreditreport.com, a web site started by the government in response to people's desire to be able to see their credit report for free so they could make sure their information was accurate. Credit scores are not included, but if you take care of what's on your report, the good scores will follow. You are allowed one credit report from each of the three big credit companies. Because much of the credit information is shared by all three companies, my advice would be to get a copy of your report from one of the "big three" every four months. So before you move on to Part 2 of this series, visit the web site and pull down on of your credit reports, and we'll look at how to fix and improve them together.
Good luck, and if you enjoy these articles and would like to be notified when there are new ones, feel free to "subscribe" by clicking at the top of the page. Happy credit hunting!