Why Is Your Credit Score So Important?
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What Is the Main Purpose of a Credit Score?
How Can a Credit Score Help You?
Lower auto insurance premiums. For most Americans, your credit score influences how much you pay for your auto insurance premium. According to the Insurance Information Institute, 95% of insurance companies use your personal credit score as part of the application review process. However, some states, including California, Hawaii, Massachusetts, and Michigan, do restrict or prohibit insurers from using credit scores to determine coverage approval. Stronger rental applications. A strong credit score can also help you stand out when it comes to rental applications. Landlords often require a credit check, with a particular focus on your payment history, to gauge how likely you are to pay your rent on time. Waived security deposits. After you get your place, having an established credit history and a good score may let you avoid paying a security deposit on your utilities. The amount of the deposit typically requested varies by company, but you could end up having to pay up to two months of your average bill in advance. The deposit is usually returned once you make consecutive, on-time payments for a set number of months, but the initial outlay may be challenging. Better job opportunities. Finally, your credit is important because it can influence your career path. Some jobs require a good credit score, especially if you’re handling money. In fact, research shows that 16% of employers pull credit checks on all job applicants, and nearly 30% perform a credit check for some positions.
What Factors Affect Your Credit Score?
Payment history: Your payment history is the most important component of your credit score because it shows how you’ve handled borrowed funds in the past. If you have a strong track record of paying your bills on time (particularly your credit cards and loans), then you’ll score well in this category. Amounts owed: You can have outstanding debt and still have good credit. But you may experience a credit score drop if you’ve maxed out your available credit. So even if you make all of your minimum payments on time, you may be penalized if you carry a large balance on your credit card, especially in relation to your credit limit. Length of credit history: Your credit score also factors in how long you’ve been using credit. The age of all of your accounts is averaged, so opening new credit lines can cause a dip in your score, and it often pays to keep your oldest accounts open (unless you’re paying a high annual fee). Credit mix: The types of credit accounts you have open also matter to your score. In addition to credit cards, your score could benefit if you diversify with things like installment loans, retail accounts, or a mortgage. New credit: The age of your accounts impacts your credit, as does how frequently and how recently you’ve opened new accounts. Your score could drop if you apply for several new credit lines in a short period of time, since it could signal a financial emergency.
How to Maintain a Good Credit Score
Is Credit Monitoring Useful?
How Much Does Credit Monitoring Cost?
How Does a Business Credit Score Differ from a Personal Credit Score?
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