Credit Rating

Most adult Americans and many minors will have some type of credit associated with their name and have accrued debt. Most of them do not have a good understanding of how this impacts them in their daily lives.

The way credit ratings are established is via the accrual of debt and how the debts are paid; if they are paid on time, paid late, or if payments go into default. A person will accrue debt in one of three ways: credit cards, automobiles, or homes. A vast majority of those damage their credit by utilization of credit cards (s) that are easily obtained with little to no credit history. If the individual pays on time, this will build a positive rating. Conversely, unpaid debts will cause the credit rating to plummet.

The range of ratings is 500-800 points; 500 being considered poor and 800 excellent. The better your rating, the lower interest rates you will pay. When you first begin to establish credit as a young adult you typically pay a higher interest rate ranging from 12 and 22%. Once you have established positive payment behaviors, you can expect to pay rates in the single digits.

It is critical when it comes to making a major purchase, such as a vehicle or house, to have a high credit score. Large purchases often required a large down payment and are considered long-term loans. If you have a good credit rating you can expect to get a better rate and put a smaller down payment. Conversely, if you have a poor credit rating you will have to place a higher down payment and pay higher interest. For example, a buyer with excellent credit history may be required to put a 2% down payment on a $100,000 dollar loan , whereas, a person with poor credit can be expected to put $5,000 to $10,000 to get a similar interest rate. The individual with poor credit history may also be required to extend the loan by 5 to 10 years. This translates into several hundred dollars paid in interest alone.

To reiterate; good credit ratings will save you money both in the short and long term. It is in your best interest to pay debts in a timely manner, this is the best investment.