Good Credit is a Key to Prosperity

There are many reasons why a high FICO credit score is important.

It will make it easier for you to get loans at the lowest interest rate. Your insurance premiums will be lower. You will be eligible for better credit cards, such as reward cards. It will be easier for you to get higher level employment. Most states (except Connecticut and Illinois) are allowed to consider credit ratings regarding employment decisions.

A poor credit score can result in higher deposits for many services such as utilities, cell phones, rental deposits and secure credit cards.

If your credit score is poor, there are many ways you can improve it. Pay all your bills on time. Make sure you repay any past-due accounts as soon as possible. Pay off debts as soon as possible, starting with those with the highest interest rates first.

As your credit rating improves, renegotiate your credit card interest rates. Maintain a credit utilization ratio of 30% or lower. (This ratio is computed by dividing the total of all credit card balances by your total credit limit.) If the ratio is more than 30%, it will have a negative impact on your FICO score.

Apply for new credit accounts only as needed. Applying for too many new cards can have a negative impact on your credit score. A new application results in a “hard” inquiry, which can lower your score.

Do not close unused credit cards with no annual fees. Keeping these accounts open makes it easier to maintain a low credit utilization ratio. When you close an account, your ratio increases.

Review your credit reports annually. You are entitled to receive a free annual report once a year from each of the three major credit reporting agencies (Experian, Equifax and TransUnion). Review these reports carefully for errors. Notify the agency regarding any errors and make sure that corrections are made.

Make every effort to reduce and hopefully eliminate credit card interest charges. I use many reward cards, but I pay the balance in full monthly, so I have no interest expense.

Use reward cards that provide maximum benefits. For example, Target offers a “red card” that provides a 5% rebate on almost all its merchandise. If you shop at Target, use their card. I also use PENFED Platinum VISA reward card which offers significant rebates for all grocery, gas, and drug purchases. Another reward card that I use is Citibank Double Cash Master Card which offers a 2% cash rebate on all purchases. None of these cards has an annual fee. There are many reward cards available with no fee that provide significant rebates. Select the ones that offer you the rebates for your most frequent purchases.

Also take advantage of department store appliance purchases for which there are no interest charges if you re-pay in a specified period. Most major appliance stores offer this feature. Make sure you pay fully by the end of the specified period in order to avoid high interest costs.

Another credit card I use for family health and dental expenses is CareCredit. As long as you pay the balance in full by the end of the pre-determined timeframe, such as one or two years, there is no interest cost. Again, you must pay fully by the end date to avoid interest charges.

Whenever I make an expensive purchase, I use a credit card. Federal laws provide protection in case you are dissatisfied with such a purchase. If this does happen, and the providing merchant does not stand by his product or service, notify the credit card company and provide documentation. I have used this feature several times and have saved several thousand dollars as a result.

If you use credit wisely and with restraint, there will be many advantages. If you aren’t saving or investing some of your income, you shouldn’t be charging anything you can’t pay for that month.

(Article written by Elliot Raphaelson)