Protecting and Building Your Credit in 2020
August 20, 2020
As the economy gradually continues to reopen, consumers’ credit will play an important role in the recovery. Here are some strategies to protect and build your credit in 2020.
What is credit and why is it important?
Credit makes it possible for consumers to purchase items that may be too expensive to pay for upfront and all at once. With credit, you borrow money for the essential products and services you need, when you need them, and then pay it back over time with interest.
Even if your goal is to pay cash for large purchases, you may still want to build a credit history by responsibly using credit. Apartment landlords and auto insurers may want to see your credit history to ensure you are financially responsible when approving your rental or insurance application. Your credit standing can even affect your job prospects.
How is your credit score determined and how can you obtain your credit report?
A credit score is a number ranging from 300-850 that depicts a consumer's creditworthiness or the probability that an individual will repay loans on time. The higher the credit score, the more attractive the borrower.
Your credit score is determined by the information in your credit report, including:
* Payment history
* Amount owed
* Length of credit history
* New credit
* Types of credit used
Consumers can access free credit reports once a year from each of the three major credit bureaus — Equifax, Experian and TransUnion — by going to AnnualCreditReport.com. It’s good practice to get your report from each of these credit bureaus about four months apart so you can regularly review your report, and quickly identify any discrepancies or identity theft and report it.
What are some steps to take to protect your credit?
There are several steps to help minimize the impact on your credit as the economy reopens, including:
* Reducing debt. This will improve your debt-to-income (DTI) ratio.
* Increasing savings. Having an emergency fund is important to keep you from adding to your debt if you need to cover unplanned expenses.
* Reviewing investment allocations. Be sure to talk to a financial adviser before making any changes to your investment accounts.
* Reducing expenses. Avoid unnecessary purchases or adding new debt.
Having a solid credit score allows you to qualify for better interest rates for loans, and can improve your job prospects. It is important to understand what your credit score is and review your credit report several times a year to make sure it remains in good standing.
Tags: Learn About Credit, Money Management, Tips and Tricks