Reduce Expenses by Improving Your Credit Score
Although the formula for determining your credit score can seem overly complex, it's basically just a reflection of your past financial decisions that helps lenders determine your future financial risk. This score is in large part determined by your credit report, which contains information about your current bills, outstanding debts, and payment history.
It's important to understand how this number is established because you can actually reduce expenses each month by working to improve your credit score.
Here are six expenses that can be reduced by having a good credit score.
1. Mortgage Payment
Your credit score is a factor in determining if you will be able to obtain a mortgage. The better your credit score, the lower your interest rate will be. Even a half-point lower on your mortgage interest rate can save you thousands of dollars over the life of the loan.
2. Car Loans
Most of us need to purchase a car to get to work and for other everyday needs. If you're like most people, you won't be able to afford to make this purchase all at once. So you'll need to take out an auto loan to finance the purchase. Again, the best rates on car loans go to those with the best credit scores. A lower rate saves you money over the life of the loan and makes your car more affordable.
3. Auto Insurance
If you own a car, it's a legal requirement in most states to also have auto insurance. While a few states don't allow insurers to look at an applicant's credit score, most do. When applying for a new policy, the insurance company will take your credit score and other factors into account when quoting you a rate. Those who have lower credit scores will usually have to pay more for coverage.
4. Student Loans
The cost of a college education has skyrocketed, causing many students to take out loans. For many borrowers, the opportunity to refinance their student loans can save them money and help them reduce expenses. But again, the best rates on student loan refinancing will go to those with the best credit scores.
5. Credit Card Payments
Your credit score is a key factor in determining whether a credit card company will approve your application and the interest rate you'll be charged on any balances you carry over from month to month. The range for interest rates for the same card can vary by as much as 10 to 15 percent. If you carry a balance, this can cost you $500 to $1,000 or more in added interest charges over the course of a year.
6. Cell Phone Plans
When applying for a new cell phone plan, the provider will check your credit score. If you have a low credit score, it can be harder to qualify for a conventional plan. In that case, you'll need to look at expensive pay-as-you-go plans. Even if you do qualify for a more conventional plan, they might require you to make an initial deposit in order to obtain service.
A good credit score is a critical part of our everyday lives, but it is also something that is generally misunderstood by the majority of people who use it. If you take the time to understand how your credit score is determined, you can then work to improve your credit score and start reducing expenses as a result.