How Boosting Your Credit Score Can Help You Save Money

We all like to save money. From lowly plebs scrimping and saving every bit of loose change they find in between couch cushions to those Wall Street fat cats who like to light their fine Cuban cigars with hundred dollar bills (and then hastily put them out when they realize they probably can't really afford to set money on fire), the idea of saving a buck or two is something that appeals to us all.

While many people looking to save some of their duckets are much more frugal with their spending habits, keeping their charge cards under lock and key and pledging their undying allegiance to their coupon book, one area of savings sometimes overlooked is boosting one's credit score. While this is more of a long term savings plan than an immediate one, having a good credit score can help you save big on any future loans or lines of credit you may open. How does it work? Read on...

It's all a numbers game

Most people have some idea of what their credit score is, and know that the higher the number is, the better. What a lot of people don't understand about their credit scores is what exactly goes into them and how having a good score can save you big time on major loans and purchases.

First, let's look at the scores themselves real quickly:

720 and beyond = Best credit ever
660 to 719 = Really good credit
620 to 659 = Decent, but won't win Best in Show
619 and below = See me after class

Okay, now that we've got a handle on where good a credit score falls on the number scale, let's look at what the numbers actually mean from a lender's prospective.

Basically, your credit score is a measuring stick used to determine your financial risk. Say you're in the market for a new car because your 1976 Ford Pinto just isn't cutting it these days. When you go to an auto dealer to apply for a loan or lease a new car, they use your score as a barometer to determine whether or not you'll be able to pay back the money they loan you. So what exactly goes into your score to make it so high or low? How do they determine how good you are with your money?

What's in a number?

According to FICO, the credit score model almost universally accepted by lenders and creditors everywhere, your credit score is broken down into 5 main categories:

Payment history - whether you consistently pay on time or not, which makes up 35% of your total score.
Amounts owed - how much you owe on your various accounts, which accounts for 30% of your score.
Length of credit history - how long you've had credit, adding up to 15% of your overall score.
New credit - any new type of credit account, which totals up to 10% of your score.
Types of credit used - revolving vs. installment accounts, rounding out the last 10%.

As you can see, paying your accounts on time makes all the difference on your credit score. Lenders see this and determine that you are less of a credit risk and so will not only approve your loan, but approve it at a lower interest rate as well, helping you save big in the long term. So how do you make sure your score is up to par so you can take advantage of better deals?

How to make sure your score is up to par

Keep your credit card balance under control. It's best to keep your balances down to 30% of the available credit, so if you have $1000 of available credit, keep your balance down to around $300 to insure the best outlook on your credit report.
Dispute inaccurate information. If you see any accounts reporting false information on your report, or notice they got personal information like your name and social security number wrong (it's far more common than you think), notify the credit bureau and have them correct the error(s).
Work with your creditors. If you know you're going to be late on upcoming payments due to financial hardship, try contacting your creditors to work out a different payment plan. Anything's better than not making any payment at all and your score suffering for it.

About this Author

My Credit Group Inc., a trusted debt relief and credit repair services company, has assisted over 100,000 clients and large institutions. Consultations are free and credit repair is backed with a risk-free guarantee.

Contact Information:
My Credit Group Inc.
800-430-7494

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