Credit is one interesting topic. On one hand, you have people that avoid it. On the other, you have die hard advocates for good credit. We can conclude that credit is very important. Building credit fast is not impossible, here is how you can do it.
Why Your Credit Score Matters
Your credit score matters, especially when it comes to important purchases like a home or car.
Having a good credit score (Typically above 700) will save you money when it comes to lending. Financial institutions will trust you more if you have a good credit score, rather than a not so good one. Your credit score will determine whether or not a financial institution will lend to you.
By having a good credit score, you will also be given a lower interest rate for loans. Which will result in less money that you have to pay in interest.
Credit score goes beyond loans. Your credit can also impact what you pay for insurance and employment too!
How Much Can Good Credit Actually Save You?
Let’s consider an example with a car loan. You want to purchase a car for $20,000. If your credit score is low, you may get an interest rate of 7%. If your credit score is good, you may get an interest rate of 3%. Let’s see the difference with a 60 month term.
Interest rate of 3%:
- Monthly payment of $359.37
- Total interest paid after 60 months is $1,562.43
Interest rate of 7%:
- Monthly payment of $396.02
- Total interest paid after 60 months is $3,761.44
In this scenario, a good credit score will save you $2,199.01. That is over 2 thousand dollars over the course of 5 years!!
How to Build Credit FAST
You just turned 18 and want to build credit, congrats! Maybe you plan on buying a car or you spoke to a mortgage advisor and the only thing holding you back is that you have limited credit history. Don’t worry.
It is possible to grow your credit score in 6 months to a year. How do I know? I’m speaking from my personal experience and experience in the banking world.
Here are the steps:
- Start with a no fee secured credit card (Ex. $500 on hold in savings as collateral in return for a credit card)
- You can also go with a secured loan.
- Pay down each bill on time and in full.
- Use 30% or less (Utilization ratio)
- Do not close when you get a new one. Length of credit history is important.
For more tips, check out My Fico. There you will find important information to help you grow and retain a great credit score.