America Saves: Credit History and Saving

April was Financial Literacy month and America Saves wants to make sure you understand the importance of your credit history and how this ties into successful saving. It is important for all Americans to have savings. Having a savings account allows you to pay for emergencies, gives you financial freedom, and can help you avoid credit problems that could hurt credit scores.

Having a strong credit history, reflected in good credit scores, allows you to qualify for lower interest rates and fees. This helps you to free up additional money to set aside for emergencies, retirement, and other smaller unexpected expenses.

The connection between successful savings and good credit plays an important role in your financial life. Not only is it essential for obvious things like qualifying for a loan or getting a credit card, but also for less obvious things like getting cellular telephone service, renting a car, and perhaps even getting a job.

Want to learn more about the importance of credit history and successful savings? 

Download the Importance of Credit History and Successful Savings packet (http://americasaves.org/images/newsletters/creditscore.pdf) which includes information on: 

• What is a Credit Report and Score?
• Why is Saving So Important?
• How do I Start Saving?
• What Savings Options Are Available to Me?
• Why is Good Credit Management so Important? 
• 5 Tips for Building Good Credit.
• Frequently Asked Credit Questions.
• FDIC Model Safe Accounts.

What are you waiting for?

Set a Goal.

Pay down debt, save automatically, and assess and improve your credit history. Go to www.annualcreditreport.com

Make a Plan.

Improve your credit history by making the minimum payment on all bills, keeping balances low on sources of credit, and applying for credit wisely.

Save Automatically.

In order to have good credit scores you must demonstrate a habit of good credit management over a long period of time. Set up direct deposit or put part of your check into a savings account automatically each month to pay down debt and ensure you have enough money for emergencies.

Are you ready to take charge of your financial future?

America Saves is here to help. America Saves can help you develop your goals and take action. When you join as a saver, you’ll receive the following benefits:

• Free subscription to the quarterly American Saver newsletter
• Free monthly e-mail newsletters with savings advice from national experts
• Free access to the members-only Savers Tracking Tool to help you reach your goals

{This month’s post was brought to you by guest author Katie Bryan, America Saves Communications Manager}

One Punk Number You CAN Control

Brace yourself: unfortunately, there is no quick fix for repairing credit. When you’re trying to lose weight, you know it took some time to put those extra pounds on in the first place; it’s going to take some time and energy to get them back off again. Improving your credit standing is a similar process. And just like  improving your physical health, a healthy financial lifestyle will prove to be well worth the effort.

Credit is a vast topic. One little newsletter couldn’t begin to delve into the depths of it, but here are some pithy dos and don’ts to consider, as you begin to tackle the task of improving your credit score.

• Pay your bills on time. Ok, this one sounds obvious. But this is the biggest component of your score, and nothing will help you more than consistently paying every bill on time, every month. If you’ve been late in the past, make every effort to get current and stay current. The more time you put between you and a late payment, the less it is affecting your score.

• Pay down balances. This is easier said than done, but if you carry high balances on, say, your credit cards, it can be hurting your score. You certainly don’t want to be maxed out, so keeping your balances at about 30% of your available credit limit will be optimal for your score. 

• Check your credit report. People underestimate the value of this one. The stats differ on this, but suffice it to say that the credit bureaus make plenty of mistakes in calculating your score—sometimes big enough mistakes that you get denied credit. So pull your free report one time per year from each of the 3 bureaus (that’s 3 times a year total) from annualcreditreport.com, and check it for accuracy. If there is a mistake, you should dispute it with the bureau. 

• Don’t close old accounts. Say you’ve had this American Express card for years, you’ve always paid it on time, but you don’t use it any more. It might be tempting to close it—but freeze. One of the components that make up the credit score is the length of time you’ve had credit. By closing that old account, you’d actually be hurting your score. Friends don’t let friends close good-standing, old accounts.

• Don’t apply for a lot of new credit. We mentioned checking your own free credit history each year—and note: doing this does not hurt your credit score. What will ding your score is when you
  apply for new credit, allowing the lender to pull your report. So when you went and applied for an
  Old Navy charge card, a Home Depot card, an AmEx card, a car loan from your credit union, and a
  mortgage from a broker, all in one week—you really weren’t doing your score any favors. Lenders
  see massive increases in credit availability as a risk, and each time you apply for credit, your
  score takes a little dive.

• Have different types of credit. It will help your score if you have both revolving credit (such as a credit card, where the balance can fluctuate each month), and installment credit (such as a car loan, where the balance is paid off over time). Don’t go apply for credit willy-nilly just because you think it will help your score, though—be wise and calculating in the credit you take on. 

While this list is by no means exhaustive, it will certainly get you going in the right direction. Much of improving and maintaining good credit is patience and consistency. You are capable of taking the reigns over your finances—don’t let your life be run by some punk 3-digit number!

If you find you need assistance with any of these items, the Family Life Center is here to help you, as always!