Yahoo Finance Here’s The Silly Reason You’re Throwing Away $80 Every Month
Imagine taking four $20 bills and tossing them off a cliff each month. That’s essentially what you’re doing if your credit score is below a certain point and you’re not taking proactive steps to improve it.
GOBankingRates recently ran the numbers and found that boosting your credit score from 620 to 760 can save the average person nearly $80 a month on auto payments, credit cards and more. Not only that, but improving your score by that much could save you more than $320 a month on a $300,000 mortgage.
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How to Stop Throwing Away $80 Every Month
It’s not that hard to improve your credit score in a hurry if you take the right steps to do so. One option is to use a credit-building tool like Instal by CreditStrong, which can help you improve your score quickly and easily.
Here’s how it works: Instal will issue you a $1,000 secured loan, which means the funds will be secured away so you don’t have immediate access to them. Each month, you’ll make payments toward the loan. CreditStrong reports the payments to the three major credit bureaus, which helps improve your credit score. Instal also comes with free monthly access to your FICO score, so you can closely monitor progress toward your credit score goals.
When you open an Instal account, you can choose the length of your loan (either 24, 36 or 48 months) and the amount of money you’ll put away each month that fits within your budget (either $28, $38 or $48).
Raising your credit score can have a positive impact on many different facets of your life. It can improve your job prospects, help you qualify for an apartment and get the best rates on a loan.
What Determines Your Credit Score?
In case you need a refresher: A credit score is the number lenders use to determine how likely someone is to repay their debts on time. Scores typically range from 300 to 850, with any score above 720 considered good and anything under 580 considered bad.
The two main credit scores are the FICO score and the VantageScore, though the FICO score is the preferred choice of most vendors. Here’s how FICO scores break down, from best to worst:
800 or higher: exceptional
740-799: very good
670-739: good
580-669: fair
579 or lower: poor
The higher the score, the better your chances of being approved for a loan — and for getting favorable loan terms. Your chances of getting approved fall dramatically for scores below 670. If your score is 579 or lower, you’ll have a hard time getting approved for anything unless you put down a deposit or find a co-signer.
FICO lists five factors that contribute to your credit score, each of which is weighted differently:
Payment history: 35%
Amounts owed: 30%
Length of credit history: 15%
New credit: 10%
Credit mix: 10%
There are a lot of ways to destroy your credit. One of the biggest ways is to be reported as delinquent. If you’re 30 days past due, your credit score will get dinged, and it snowballs from there the longer you stay delinquent.
You can also destroy your credit by amassing debt. This can increase your credit utilization ratio, which measures how much of your total available credit you’re using. As your ratio goes up, your score goes down.If the situation gets out of control, you might have to file for bankruptcy, which will significantly hurt your credit.
How Does Bad Credit Cost You Money?
When you have a poor credit score, you probably won’t qualify for the best rates on loans for things like your car or a mortgage on your home. The differences in these rates might seem small, but over time, they can seriously cost you.
If you need a personal loan, you might not qualify at all. This causes a lot of people to rely on payday loan services or other entities that charge exorbitant interest rates. You’ll pay a lot more money in interest at these places — and have a lot less time to pay off the loans before steep penalties kick in.
How to Improve Your Score and Save Money
The best way to improve your credit score is to get into the habit of paying your bills on time and in full each month.
Credit-building tools like Instal by CreditStrong are also a great way to quickly improve your score without using risky credit cards.
It takes just a few minutes to get started here and see how much you could improve your score.
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This article originally appeared on GOBankingRates.com: Here’s The Silly Reason You’re Throwing Away $80 Every Month
