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Credit Card Applications » News » Other » Importance of Credit Score

Importance of Credit Score

July 14, 2008 | Updated on July 14, 2008
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The content is accurate at the time of publication and is subject to change.

Raise Your Credit Score to Save on Credit Card Charges

A credit score is a three-digit number that predetermines success or failure in our financial lives. According to an annual survey conducted by WaMu and the Consumer Federation of America, consumer awareness of credit score has increased over the past year, though it still leaves much to be desired.

Interestingly, by raising their credit scores by 30 points, customers could save approximately $100 on credit charges annually. Meantime, annual saving could amount to $28 billion, as financial institutions provide better credit products to people with higher credit scores. Read more about this.

Oddly enough, this three-digit number plays a very significant role in our lives. The point is, credit card companies, utilities, employers and landlords check credit scores to estimate if a potential client is trustworthy. When it comes to loan, you low credit score may cost you much. Generally, best credit cards are designed for those whose credit is near to perfect. If yours is far from ideal, it's in your hands to raise it.

One of the surefire methods of boosting a credit score is avoid exceeding spending limits, and even coming close to credit limits, as it can hurt your credit score. Generally, it's recommended to keep your debt-to-credit ratio below 50 percent, or better 30 percent. Lenders would like to see a big gap between the amount of credit you are using and available credit. The more available credit you've got, the better.

However, this is not as easy as it might seem. Increasingly, credit companies cut spending limits on their cards to reduce their risks. So, you should be extra careful with your credit card spending, and try to get control of your current balances.

For improving your credit rating, you should also avoid opening too many new accounts at a time. Instead of this, you'd better pay off your credit debts, especially on those cards that are closest to their spending limits. If you want to boost your credit score, this is a better strategy compared with the one that requires high-rate balances to be paid first.

All the more so, the results of this annual survey show that less than one-third of US consumers understand that a credit score is a reflection of their likelihood to pay off debts. Meantime, there are a lot of cardholders who mistakenly think that a credit score reflects their financial resources. Some people share the opinion that demographic factors such as age or education affect their credit rating. In fact, it's far from reality. A credit score is a numerical expression of a person's creditworthiness, it's a measure of credit risk. The higher your score, the lower your risk is.

One more positive sign revealed by this survey is that almost half of all cardholders have obtained their credit score over the past two years, compared with 42 percent last year. More and more people become aware of the value of a credit score, but still there are lots of those who misunderstand some issues associated with a credit score.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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