Everyone knows their credit is an important measure of financial security. If your credit drops, so will your reliability. Those who have an investment in you, such as your auto insurance company, might feel compelled to take action. That could mean higher prices and more hassle down the road.
Often, credit threats are not exactly your fault. Nevertheless, it's up to you to try to prevent any credit threats from coming down the line. What are some of the most practical ways to do so?
If you work to keep your credit score strong, you'll often face better financial terms from lenders and insurers. Thus, you might have a better cushion on which to build a more secure financial foundation. It's a win-win situation for anyone.
Credit Risks Can Expand Rapidly
Your credit score is a measure of your reliability with your money. This number can often help you get loans, qualify for insurance and receive better interest rates. The higher your score, the more favorable these terms often prove.
Indeed, a good credit score can help you pay lower rates on your car insurance. Insurers frequently view a good credit score as a sign that you will pay your premiums on time. Some even take it as a sign that you have a lower likelihood of filing a claim on your policy. This signal of stability might lead them to reward you with a lower overall premium.
Nevertheless, credit is, at times, very fragile. A few bad investments or missed payments might lead to a drop in your score, at least temporarily. Other issues, such as excessive debt, loan defaults and bankruptcy, might cause your score to drop significantly for a much longer period. Even instances of identity or credit card theft might lead to problems with your credit.
Therefore, everyone has a responsibility to stay on top of their credit score. A consistent awareness of your financial standing will help you guard your credit. What are some of the positive steps you can take to maintain your credit base?
Step One: Know Your Loans
Taking out too much credit at once can cause your score to drop. This is often temporary. However, you don't want to make credit loans things that you habitually open. If you continue to take out new credit, some lenders might think that you are desperate for money. In other words, they might begin to think you don't have money to keep yourself secure.
If you take out a loan, expect to see your score drop slightly. However, if you make payments on your loan, you'll likely see your credit recover, and even increase.
Step Two: Pay Bills On Time
If you keep high balances on your loans or credit cards, you will likely see your credit score drop. This occurs, because you begin to show that you cannot keep up with your bills. Creditors and other parties might begin to see you as untrustworthy.
Budget essential bills — such as your car and electricity invoices — so that you can pay them in full every month. Critically, pay your insurance premiums on time and do not miss payments. Failing to pay your insurance premium might result in a rate increase or a cancelled policy. Keep in mind, any missed bills might cause late fees and potential credit deductions.
Theoretically, it is okay to have a small amount of certain debt, such as credit card debt. Indeed, the average American had around $6,000 in card debt in 2017. However, any debt is still debt. Therefore, strive to keep your credit card balances as low as possible. Generally, it is a good idea to pay your balances in full every month.
Step Three: Keep An Eye On Your Privacy
Identity theft, credit theft and fraud happen all the time. You don't want it to happen to you. You might see your credit score drop, and your private information become exposed.
There are multiple ways to keep an eye on your credit and security:
- Watch your statements for unknown charges. If you have a smartphone, set a notification to receive an alert every time someone uses your credit card. You can often get alerts to notify you when companies receive payments.
- Never share your credit information, social security number or bank information with anyone. If any of these numbers get stolen, immediately contact your lender. They can help you lock down your accounts.
- Request a comprehensive credit review once per year. Major credit companies, like FICO or Experian, will provide reviews for a nominal fee, or even free. They'll often be able to provide you with a full review of existing lines of credit. If you notice any unfamiliar accounts, you often can report them as discrepancies.
- Any time your financial status changes, update your income information with credit providers. This will help them gain a better view of your financial trustworthiness.
If you have concerns about how credit will impact your insurance rates, contact your Auto Insurance Discounters agent. Your agent will be happy to help you look at ways to still get affordable rates, even with a lower credit score.