Why does credit score matter?

Credit score isn’t one of those topics you bring up during dinner, but maybe it should be. Many people don’t realize how important credit actually is and the impact your credit score makes in the grand scheme of your finances. Think of your credit score like a report card, your financial report card - one that will follow you through your entire life. You are the one in control of your credit, so make sure you are doing the best things possible to improve your score and be careful in making risky decisions.

So, what is credit anyway? “Using credit means being able to pay for things you want or need when you don't have enough cash to cover the purchase, or don't want to pay in full all at once. Your part of the bargain is repaying the lender the amount of money you've borrowed, plus interest, calculated as a percentage of the amount you owe.” (BANZAI)

Here are some examples of why your credit score matters, and how having a good credit score can save you money in the long run:

EXAMPLE #1 – Imagine you have a Credit Card balance of $2,500. But you’re only making the minimum payment of $50 each statement, while not making any more charges on the card. See below how a difference in your credit score affects your interest rate, which can cost you more or help you save money in the long run.
 

*CSE Visa Credit Card Rate

EXAMPLE #2 – Imagine you had to get a new Auto Loan for $5,000 and with your credit score you were able to get it at a term of 48 months. See below the payment per month cost as well as the interest rate and interest paid compared between a member with an A+ credit score versus a member with a not-so-great credit score.

As you can see, the member with the better credit score saved $1,791.36.

Check out this Lifetime Cost of Credit Calculator to use as a tool for your own finances. 

Generally, when starting the process of building credit, you start with lower credit. At CSE, our goal is to help you improve and build your score. As your credit score improves, there is the possibility to reassess the interest rate(s) of your loans or credit card. It is not uncommon for a CSE member to start at 18% on a loan or credit card, but get that rate reduced to something lower due to an improving credit score. Asking never hurts, and you don’t know if you can save money until you follow through and look into it!

Here are some helpful tips to improve or build your credit:

• Have good activity reported for at least 6-8 months. Doing just this may get you to a mid-range credit score.
• Most times only one (1) trade line will not give you a great credit score, but it’s a start. You may consider starting with a low-limit credit card that you use for specific things you know you can pay off, like gas once a week. After you receive each credit card statement, pay it off in full.
• Check your credit report, looking for any issues. Making sure there haven’t been any mistakes on your credit report is a great idea. Below you will find resources on where you can monitor, view, and contact credit reporting bureaus.
• Set up payment reminders and make your payments on time. You never want to have a missed or late payment if you’re trying to improve your credit score. You may even want to consider automatic payments so you never forget!
• Reduce the amount of debt you owe. Part of your credit score includes the debt you owe, so it’s best to work on paying it down and/or off. Make a list of your accounts & check your statements to see how much you owe and the interest rate you’re paying. Consider if you’d be able to consolidate these debts into one loan, where you may be able to get a lower rate and eventually save money.

Monitor Your Credit With These Resources

Annual Credit Report Request Service (this is a totally FREE service)

PO Box 105281 Atlanta, GA 30348-5281  |  1-877-322-8228

www.AnnualCreditReport.com

Three major credit reporting agencies:

Equifax 1-800-685-1111         Experian 1-888-397-3742       TransUnion 1-800-888-4213

www.Equifax.com                     www.Experian.com                   www.TransUnion.com

You have the right to obtain a FREE copy of your credit report from each of the three major credit reporting agencies (effective September 1, 2005).

Resources:

Banzai - https://csefcu.teachbanzai.com/wellness/resources/using-credit