Great Savings #33 – Protect Your Credit


Bad credit can hurt in many different ways. And it’s not always in the obvious places.

If you believe the cost of living is unaffected by your credit history and credit score you may want to reconsider. A credit score is a number based on a complex mathematical formula that tries to evaluate your riskiness as a potential customer. The score is based on your history of the lack thereof. In other words, your history works for or against you and is used by companies to determine whether you’re a good bet to pay your bills on time. Here’s the problem: A low credit score means you pay more for just about everything. Don’t believe it? Then you’d best read on.



What’s In A Credit Score?


It's a good idea to know your credit score.

A credit score is a number that constantly changes based on the way you use credit and spend money. It ranges from 350 to 850. The higher the better.

Your credit score is based on your past actions—how and when you pay bills, how often you pay late or miss a payment, how much credit you have in total, how much of your credit you use, whether you recently added or even closed a credit card, the longest period you’ve held a credit account, the number of credit inquires about you, whether you ever filed for bankruptcy, etc. In other words, it’s based on your complete credit history. Thus, even if you never use credit cards, other parts of your credit history can affect what you pay for certain goods and services. Surprisingly, you may pay your bills on time and think you’re doing everything right and still end up with a credit score that’s less than perfect. In a way, this makes credit scoring a bit a of game so it pays to learn the rules.


How Your Credit Score Increases The Cost Of Everything


The notion that a credit score increases the cost of everything we buy is a valid one—at least as far as most people are concerned. True, some folks only buy with cash, pay all their utilities on time, own their home and car outright, and have spotless driving records. For the rest of us who have a mortgage or are leasing an apartment, have a car loan, can’t always pay off our credit cards every month, need insurance, or may have missed a payment or two, life’s a bit more complicated. Right or wrong, and whether we like it or not, companies use credit scoring as a way to minimize their risk—that is to cut the cost of collecting money from their customers, or in some cases paying money out to them.


One excellent example of this comes up as we go to buy insurance. Though an insurance company may not base its decision to insure an individual entirely on a credit score, it can help them assess whether that customer is a risky bet, and thus, whether he or she should pay a higher premium for a policy. In fact, there’s a special type of credit scoring called the Insurance Credit Score used by insurance companies to help rate their customers. If you have poor credit, expect to pay more for that policy or even be turned down by certain insurers.


Credit scores affect the cost of living.

What are you paying for your car insurance or car loan? Good credit could help reduce the cost.

Another example comes up in the places we choose to live. Say we find a great apartment and make an application to rent it. In the process, the landlord checks our credit score and decides he won’t rent to us. From past history, the landlord knows he’ll generally have a harder time collecting from people who have poor credit scores. Thus, we’re out of luck! Or suppose we want to purchase or refinance a home. In this case, our credit will help the underwriter determine what interest rate they should charge on the loan. That can either mean spending or saving thousands more over the years.


And let’s not forget about those pesky credit cards: If we pay them off each month the rate of interest on the account isn’t even a factor. On the other hand, if we carry a monthly balance that interest rate can make everything we’ve purchased cost much more. Unfortunately, a lower credit score means we pay a higher rate. And that implies that when we finally pay off, say, the new TV we just bought, we’ll end up paying substantially more than others who have a better credit record. In other words, extra dollars spent on interest make the items we purchase more expensive and that leaves us at a distinct disadvantage when it comes to building wealth.



As Good As Owning Gold!


Are you doing everything you can to protect your credit.Since our credit history and score have the potential to affect the way we live and affect the cost of the items or services we buy it pays to do everything we can to protect them. What can you do? Start by taking the 4 steps below:


(1) Log on to for your free credit report. Remember this: Your credit history determines your credit score so you want to make certain it’s correct. This makes it a good idea to check your report periodically. Thankfully, the three major credit reporting agencies (i.e. Transunion, Equifax and Experian) allow us to do that for free once a year. All you need to do to get yours is log on to and follow their procedures to request a report. You’ll be asked for your current location, phone number, social security number, and then to answer specific questions designed to help protect your identity. Once you get through this process you can access your free report.


Other sites may help you keep tabs on your credit or be able to provide you with your credit report on a periodic basis, but that almost always comes with a fee. This isn’t to say you shouldn’t join up, but get your free report first, and then check around for the best deal if you’re interested in credit monitoring, I.D. theft protection or other credit services. (One note: You get one free report from each of the 3 credit bureaus each year. You can take them all at once to check them against each other, or you can take one from a different company every few months. Either method might be appropriate to your situation.)


(2) Review your free report. Once you receive your free report (which can be in just a few minutes if you do it online) you should review it for any errors. If you find any, you’ll be provided with addresses and or links which you can use to try to investigate and resolve any issues. Do this as soon as possible. If you opt to get all 3 credit reports at once you may find some differences between them. The companies each have their own reporting cycles and method for collecting and keeping data so don’t be unduly alarmed unless you find obvious discrepancies or out and out errors.


(3) Find out your credit score. Just as you checked your credit history, you can also check you credit score. However, it’s not quite as straightforward. Each of the three main credit reporting agencies will keep their own score on you. They use data they’ve collected about you and a scoring formula that was originally developed by the Fair Issack Company, which is commonly referred to as FICO. Thus, the credit score you’ll get is often called the FICO score. FICO scores will range from 350 to 850. The higher the number the better.


Though you can get your score “free” the first time from many credit monitoring or reporting companies, you may have to sign up for a credit monitoring plan and then turn around and opt out within a certain time frame or you’ll actually end up paying. You may also be given the option to pay a one time fee for around eight bucks.


Alternatively, a company called Credit Karma shows you 3 types of credit scoring for free as often as you like. They can offer this service by targeting adds from companies that offer various credit or insurance services specifically to you. Credit Karma provides you with the standard FICO score as provided by Transunion, the Insurance Credit Score mentioned above, and the Advantage Score which is yet another scoring model developed by the 3 major credit reporting agencies to compete with the FICO score. It rates credit on a scale of 501 to 990. The company also has some interesting tools that show you how taking certain actions might affect your score. It’s worth checking out.


(4) Stick with us. Anything and everything you do to improve your finances is ultimately going to help boost your credit score. Thus, for dozens of great ideas to save money, spend less, get out of debt, and build long-term wealth, sign up today to get instant email notification of our latest Great Savings Tip. You can do that by clicking here.


Action Item: If you haven’t already done it, what are you waiting for? Start by reviewing your credit history. Log on to for your free credit report. And for more detailed information on credit scores, and specific steps you can take to improve yours, read our post: Your Credit: Keeping Score.


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