If your credit score isn't as high as you'd like, you're not alone. According to Experian, more than 50% of consumers in the US have a credit score that's considered Poor (550-649) or Very Poor (549 & below). Your credit score impacts everything from buying a car to the apartment you rent to whether or not you can get a decent cell phone plan. A poor credit score can keep you from reaching your financial goals and living the life you want. The good news is that your credit score can change; it's just a matter of understanding it.
Since 2010, Credit Sesame has helped millions of consumers manage their credit score and continues to provide people with education and tools needed to take control over their finances. If you have a low credit score and are not sure how to improve it, start by identifying which of these 5 common credit mistakes you might not know you're making.
1. You don't check your credit score
Checking your credit is free of charge, and yet many of us rarely do it. The Federal Trade Commission estimates that as many as 20% of consumers have errors on one of their credit reports, many of which go unnoticed. Errors, like a wrong address might seem small, but the effects can wreak havoc on your score. Consumers who check their credit reports regularly are able to spot errors and dispute them more quickly, avoiding the effects of potential low marks. Credit Sesame makes it easy to keep tabs on your credit score without negatively impacting your score.
2. You miss credit card payments
Your payment history may be the most important factor affecting your credit score. Paying your balance in full each month can help maintain a strong score, but if you miss payments, this can cause your score to suffer. One common reason people miss payments is that their due dates don't align with pay cycles. Consider calling your bank to change your due date
, and signing up for automatic payments. If you can't pay the balance each month, try to pay the minimum to ensure payments are still being made.
3. You don't diversify your credit
Almost 40% of Americans have only a single line of credit but having multiple lines of credit in good standing shows agencies that you can manage multiple accounts effectively. This doesn't mean you should take out a car loan simply to have more lines of credit. Instead, you could replace your debit card with a credit card as your go-to method of payment for everyday expenses. Just be sure to pay off your monthly balance to avoid interest payments. Credit Sesame is a great resource and gives its users personalized tips and lets them know about relevant financial opportunities.
4. You max out your cards
Credit utilization measures the amount of available credit you have and how close you are to reaching your limit. For example, if you have a limit of $8,000 and charge $6,000, your utilization is 75%--in other words, too high. People with the best credit scores make sure to keep their utilization below 10% of their available credit, and never more than 40%. If you can't reduce your spending to lower your utilization, see if you can request a credit limit increase.
5. You close your old accounts
Having a longer credit history suggests to lenders that you're more likely to be a trustworthy borrower. Americans with 11+ years of credit history have on average a 100-point lead in their credit scores. Nearly half of Americans could have a higher credit score if they simply left unused accounts open, because this could diversify credit and lower overall utilization.
Whether you want to keep tabs on your credit, improve your score, or get approved for a loan with a better interest rate, Credit Sesame makes it easy. Start by getting your free credit check at Credit Sesame today
, and take the first step towards financial freedom.
Update: The folks at credit sesame are extending a special offer to our readers. Follow this link for a free credit consultation including your free credit report summary and score!
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.