Good Credit Can Finance Your Dreams
By Meredith Leyva
Summer 2005
I absolutely dread paying the bills every two weeks. It's depressing how much money goes toward boring things like utilities, and I know that I could be spending my time doing things that are much more fun. Couldn't I just pay my bills a little later?
The answer is no. The most important things you can do to maintain good credit are to pay your bills on time and pay at least the minimum amount due on your credit cards - more, if at all possible. Even when you splurge at the mall, banks and lenders are still willing to offer more credit simply because you consistently pay your debts on time.
Good credit keeps your interest rates low. So you can afford to buy a new car or a well-maintained used car instead of a lemon. Furthermore, that low rate saves you hundreds of dollars in car payments each month. If you have good credit and purchase a $20,000 car at the advertised interest rate of 3.5 percent for five years, you pay only $364 per month. After five years, you have paid only $1,830 in interest. If you have weaker credit and obtain a loan of 10 percent for five years, your monthly payment shoots up to $425 per month, and you pay $5,500 in interest during the length of the loan. Car buyers with truly bad credit may pay an interest rate as high as 25 percent, which would equal a monthly payment of $587 and more than $15,000 in interest.
Maintaining good credit also means banks and lenders will court your business by offering you more credit for things such as new homes, credit cards and new business loans. You can make lenders compete for your business and find the best deal. Rather than paying the lowest interest rate, the best deal may mean making the smallest possible down payment. This is why people with bad credit typically cannot afford a home. They are required to make a down payment of 20 percent or more of the value of the house - for example, $30,000 on a $150,000 home. Home buyers with outstanding credit may pay only three percent down on a new home and still receive an excellent interest rate.
Lenders determine your credit rating by reviewing your credit history and score at a credit bureau. You can find out what they see by obtaining a copy of your credit report. Thoroughly review your credit history and dispute any errors. When I last checked on my credit rating and history, I found that several lenders had forgotten to tell the credit bureau that I had closed two credit card accounts. That meant new lenders thought I had a bunch of credit cards that I could easily charge up, which might make them nervous and charge me a higher rate on a loan. Additionally, I was able to dispute several black marks on my credit history that were more than seven years old.
While credit bureaus are legally responsible for reporting accurate information, you must bring any errors to their attention. To remove incorrect information in your credit report, you must send a letter to the credit bureau that clearly explains the error. Include photocopies of supporting documentation. Once the credit bureau receives your request, by law it has 30 days to investigate it and respond to you.
(Keep in mind that there is a difference between incorrect information and negative information. As long as negative information is accurate, it will remain on your credit report. Beware of "credit repair" companies that make misleading promises to "clean up" credit reports or erase bad credit.)
Finally, think like a lender and take a hard look at your credit. Don't max out your credit cards. Live within your means. You may think driving a BMW on a military salary is cool, but savvy people with good credit will know you are drowning in debt to finance your image. It's more important for you and your family to know that all the bills will be paid than to drive a trendy car.
You can start to achieve that dream, and many more, by building a history of good credit.
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Meredith Leyva is author of "Married to the Military: A Survival Guide for Military Wives, Girlfriends and Women in Uniform" (Simon & Schuster, 2003) and founder of CincHouse.com.
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How To Contact The Three Credit Bureaus: You should get a copy of your credit report from each of the three major credit bureaus. The three bureaus are competitors and do not share information with each other, so each credit report may be somewhat different. Call, write or order online:
Equifax
P.O. Box 740241
Atlanta, GA 30374
1-800-685-1111
Experian
P.O. Box 2104
Allen, TX 75013
1-888-397-3742
TransUnion
P.O. Box 2000
Chester, PA 19022
1-800-888-4213
