Healthy Credit Habits: The Secret to a Good Night’s Sleep
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Healthy Credit Habits: The Secret to a Good Night’s Sleep Loretta Worters, Insurance Information Institute U.S. bank credit card delinquencies have fallen to their lowest levels in almost ten years, according to a recent report from the American Bankers Association (ABA). The credit card delinquency…
Healthy Credit Habits: The Secret to a Good Night’s Sleep
Loretta Worters, Insurance Information Institute
ten years, according to a recent report from the American Bankers Association (ABA). The credit card delinquency rate fell to 3.28 percent in the fourth quarter of 2010, the lowest rate since the first quarter of 2001. Increasingly, consumers have learned that having credit, and managing it effectively, is a financial behavior that brings many rewards.
Good credit provides benefits besides the intangible (but valuable) rewards of
peace of mind and a good night’s sleep. It can help you when applying for a job,
buying or renting an apartment, securing a loan, obtaining a cell phone, and
purchasing home or auto insurance.
Banks, insurance companies, and others use credit information in different
ways. Banks use a credit score to predict the likelihood of delinquency or non-
repayment of debts. They might charge a higher interest rate or loan a smaller
amount to someone with a low credit score.
Insurers calculate what they call a credit-based insurance score. In general,
insurers use many fewer items of credit information than banks to determine
an insurance score. Insurance scores are based on information like payment
history, bankruptcies, collections, outstanding debt, and length of credit history.
Insurance scoring helps identify those consumers who present a lower risk of
loss so insurers can offer them lower insurance premiums. This helps make
insurance coverage more available and affordable to the majority of consumers.
Insurers use credit-based insurance scores together with other information
to make pricing and acceptance decisions. With auto insurance, the driver’s
age, gender, driving record, location, and intended use of the car are important
factors, along with a credit-based insurance score, in the pricing calculations.
With home insurance, a credit-based insurance score is supplemented by the
square footage of the house and any additional structures; building costs in the
area; the home’s construction, materials, and features; the amount of crime
in the neighborhood; the likelihood of damage from natural disasters, such
as hurricanes and hailstorms; the claims experience; the proximity of a home
to a fire hydrant (or other source of water) and to a fire station; whether the
community has a professional or volunteer fire service and other factors that can
affect the time it takes to put out fires; and the condition of the plumbing, heating,
and electrical systems.
To protect your credit standing, be sure to pay your bills on time, don’t obtain
more credit than you need, and keep the balances on your credit cards as
low as possible—ideally, try to pay off the bill in full each month. If your credit
report is incomplete or has an error, contact the credit-reporting bureau
immediately to make any corrections. If you find yourself unable to meet your
financial obligations, contact your creditors to see if you can negotiate a more
manageable payment schedule. Also consider working with a legitimate credit
counselor. The sooner you can begin to manage your credit and pay on time, the
better your credit report will be over time. Sweet dreams!
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