If you’re like most Americans, you don’t check your credit scores or even your credit reports. Even after a major data breach at Equifax this year that could have exposed more than 140 million consumers’ personal data, only about a quarter of U.S. adults bothered to check their credit score or credit report for possible fraud, according to a CreditCards.com survey.
For many consumers, it’s a case of just not thinking their credit is important. They’re not currently trying to buy a car or a home or apply for a new credit card, so what does it matter, right? Wrong.
Bad Credit Can Cost You…
Not knowing where your credit stands can come back to bite you in many ways. It doesn’t just affect you when you’re applying for a loan or a credit account. Scammers can use your credit to open fraudulent accounts in your name and wreck your credit in the process. On top of that, your credit standing can actually increase the costs of things like automobile insurance, renters insurance and other financial vehicles if it’s bad enough.
Just like lenders, insurance companies want to know what kind of risk you pose. They’ll look at your driving record to see if you’ve had any accidents or tickets, but in most cases, they’re also going to be looking at your credit scores, though they call them your “insurance scores.” In fact, there are only three states, Hawaii, California and Massachusetts, that do not allow insurance companies to consider your credit scores in setting your coverage premiums.
What bearing could your credit history possibly have on your insurability? It turns out that insurance actuaries (the folks who crunch all the numbers at insurance companies) have found a correlation between your risk factor and your credit scores. The better you handle your finances, the better the chances that you’ll be a responsible driver.
…And So Can Debt
All of this means that, if you’re not responsible with your finances – if you make late payments on your credit cards, carry a significant balance from month-to-month, have let an old cable bill go to collections – your insurance premiums will likely be higher. More importantly, bad credit can keep you from reaching your financial goals.
How to Improve Your Credit…
Of course, you can’t improve your credit if you don’t even know where you stand. To increase your credit scores, you’re going to have to check them. You can get absolutely free credit reports from many reputable online providers like Credit Karma, Credit.com and others. Caveat: If someone wants your credit card information to provide your credit scores, it’s a good idea to move along. You don’t need to provide that information to get your scores.
You can also get your free credit reports from the three credit reporting agencies, Equifax, Experian and TransUnion, through the website AnnualCreditReport.com. There are a lot of other sites that will charge you or try to get you to purchase other products. Again, there’s no need to pay for anything to get this information.
…By Paying Down Your Debt
Once you know your credit scores and have reviewed your credit reports, you can look for ways to improve your credit standing. Are there errors that could give your scores a bump? Fix them. Are there negative accounts listed that are older than seven years? Request that they be removed.
Once you’ve gotten rid of blemishes that shouldn’t be there, it’s time to address legitimate items that could be dragging down your scores. If you’re carrying a lot of debt on credit cards, it’s a good idea to look at ways you can pay them down. Here’s a great explainer on how to pay down your debt fast. You can also consider getting a balance transfer credit card to consolidate your outstanding credit card bills and pay them down without all that extra interest accruing. Here’s how to pick the right balance transfer credit card for your financial situation.
It may seem overwhelming if you’re looking at a mountain of debt, but you can do this. Having a monthly budget can help you take control of your money, which allows you to take control of your future. It’s a good idea to take it one step at a time, but somewhere along your journey, you’ll be able to take a look at all the money you’re saving on credit card interest, insurance premiums and other items because you took those first, critical steps.
[Editorial Disclosure: PayDownMyDebt.com is a service that provides people with tools to pay down their debts through automatic payments. The purpose of this article, however, is not to encourage users to purchase that service. This article is educational and journalistic in nature and aims to help people learn how to pay down their debt, whether they use our site, another, or go it alone.]