published in Storytime Tapestry and gather. com
In this volatile economy it is very important for people to preserve and protect their credit rating.
The first way to preserve your credit is to avoid using credit cards.
The most sensible way is not to spend foolishly. The Christmas season is just around the corner and the temptation to spend is readily apparent. However do the kids really need all those toys, does hubby really need another electronic gismo?
With the economy in such a bad state, it would be wise to limit spending as much as possible. Instead of several Christmas gifts for everyone, perhaps one significant gift each. Furthermore, it is important not to go into debt over Christmas gifts. Buy with cash, that way the total family spending on the holidays will be curtailed and the added pressure of paying interest on purchases long forgotten in the New Year will be eliminated.
People rely too heavily on borrowed money. Most credit card owners are still paying on purchases they made several years before. Think of all the money wasted on broken toys from last Christmas that some families are still paying for this Christmas.
We really need to tighten up. Many people are so far in debt that every credit card is maxed out. What will happen when they really need the credit card for an emergency and there are no funds available?
The second way to preserve your credit is to use your credit card only in an emergency, and never place a purchase on the credit card that you would not be able to pay off when the bill comes in.
With people losing their jobs and their homes, a good credit rating is worth its weight in gold.
The third way to protect your credit rating is to pay all bills on time, your utilities, your credit cards, your insurance, house payments, car payments, your internet and your magazine subscriptions; whatever bills you have pay them on time. Every time a payment is left unpaid or is late this outstanding debt is reported to the credit agencies and noted on your file.
There are three credit reporting agencies in the USA, they are: Equifax, TransUnion and Experian. Every time you apply for credit the potential lender will inquire with these credit-reporting agencies to see if basically your credit is good and you have the ability to pay back your loan and to pay it back on time. The information is released to them in the form of a score, or rating called a fico score, which is a statistical score based on your credit history. The higher the score the better the credit history you have.
The best fico scores attributed to approximately 20% of all scores are over 780, while the lowest 20% fall below 620. The average American’s fico score is around the 680 mark.
You are considered to have an excellent credit rating if your fico score is between 720-850 – This means you will be able to obtain the best interest rates on the items you purchase, and get the best over all credit card deals.
Your opportunities are still very good if your fico score falls in the 700-719 bracket.
Your credit will still be good and you will be able to obtain most loans with a credit rating between 675-699.
If you fall within the category of sub-prime (below average) with a fico score of 620-674, you can still qualify for certain loans but you will end up paying higher interest rates.
You will have trouble getting a loan with a fico score of 560-619, though not impossible. You we will be considered a risk.
Unfortunately a fico score of 500-559 will be considered very risky and you would need to improve your score before approaching a lender any time soon.
These fico scores not only affect whether the lenders will grant you credit in the first place; it will also determine how much they will grant you and at what interest rate.
Some people fall in the trap of high interest rates and they never seem to get out from under it. This is particularly true for high-ticket items such as purchasing a home.
According to myfico.com the national average for a $300,000 loan on homes yield the following:
30 year fixed mortgage 15-year home equity loan 36 months auto loan
Fico score APR Monthly payment
760 – 850 5.675% $1,736
700 – 759 5.897% $1,779
660 – 699 6.181% $1,834
620 – 659 6.991% $1,994
580 – 619 9.024% $2,419
You will pay over $600 extra a month for the very same $300,000 mortgage loan if you fall in the lowest credit rating bracket.
Still think you can afford to charge for Christmas and anything and everything that comes along afterwards without sitting down and carefully considering if you really need to purchase these items on credit? Is the immediate joy of having the latest blackberry or Xbox or what have you worth forfeiting your new home or new car or whatever big ticket item you might need in the future?