A credit score is a numerical representation of your financial reputation. The higher the number, the more adept and responsible you're considered to be at making payments. It comes with a host of benefits, too, like lower interest rates, quick approval times for mortgages loans, and even lower insurance premiums.
In fact, if superlatives were ever to be handed out to those who thrive in money matters, Americans would be the most likely to succeed, a recent study suggests.
National average credit score up three points
Throughout much of the United States, consumers are being praised for their credit credentials. In its sixth annual State of Credit Study, Experian found that the national VantageScore average for Americans was 669, up three points from its previous analysis done in 2014.
Michele Raneri, Experian Vice President, noted that Americans are doing what it takes to maintain or improve their credit "rep," passing the test with flying colors.
If I were to give a grade to the overall picture of credit in the United States, I would give it an A minus," Raneri explained. "I'm optimistic about the state of credit as we are seeing more loans being extended, late payments are decreasing and consumers are continuing to gain more confidence in originating loans."
Late payments have been particularly few and far between. The study found that instances fell by 4.4% during the study period, down more than 17% from 2010 at the height of the Great Recession.
While a good credit score is well known for the advantages it has in the world of mortgages and credit cards, its impact on insurance rates is lesser understood. As noted by the Insurance Information Institute, a credit score is one of several factors that insurers use to assess how much a policyholder's premiums will be. In the case of auto insurance, for example, other considerations include driving record, vehicle make and model, miles driven, and claims history, just to name a few.
Several studies confirm what insurance professionals know for a fact: When you have a good credit score, you wind up spending less on premiums. And not by a little – by a lot! Just ask the experts at Consumer Reports, which ran a study on the topic. On average, drivers with a very high credit score – in the 700 to 800 range – paid approximately $215 less than those whose score was good but could be better.
Just as getting in shape requires diet and exercise, there's no such thing as a "magic pill" to getting and maintaining a solid credit score. It takes a disciplined approach to keeping tabs on what payments you have and ensuring that you don't bite off more than you can chew.
The following tips from the Consumer Financial Protection Bureau can help you build a solid score:
Faithfully pay your bills
A surefire way to a credit catastrophe is by chronically failing to make your payments in the prescribed time period. This may stem from forgetfulness due to having too much on your mind. Try to get in the habit of paying off your bill as soon as you receive it.
Use credit consistently
Everyone has to start somewhere, which is why if you don't have much of a credit profile, you should start buying through this means of payment. Credit is built over time, so the longer your credit history is, the more creditors have to operate from in judging your payment track record.
Stay well below your credit limit
Everyone has a ceiling from which they can borrow money, the amounts varying. Make sure you're aware of what your credit limit is so you can avoid "maxing" out. According to experts cited by CFPB, the ideal is staying 30% below your max.
Don't apply for credit you won't use
Credit scores often operate on a "use it or lose it" dynamic. In other words, if you apply for a credit card but rarely use it, this inactivity can wind up affecting your credit score in a negative way. That's why you should only apply for credit that you need.
With these suggestions as your guide, you'll find the "credit" where credit is due by saving money on your insurance coverage.