Excellent Credit: Why It's Important and How to Protect It

It's pretty common knowledge that those who have excellent credit get the best interest rates on credit cards and mortgages. But there are other advantages that aren't as well known.

For instance, those with stellar credit also pay lower rates for personal loans. Want to refinance a mortgage or a car loan? Consumers with great scores get the best deals. In addition, they can also pay lower premiums for health insurance, life insurance, and auto insurance.

One more reason to hang on to excellent credit? Employers often look at credit reports as part of the hiring process. While credit scores don't show up on these credit reports, an excellent credit score usually is the result of an impressive credit history -- and employers do see that.

How to Protect an Excellent Credit Score

The best way to attain -- and maintain -- an excellent credit score is to pay all of your bills on time. Most consumers don'tknow that a delinquent cell phone bill can end up on their credit reports. Well, it can! So pay attention to even the smallest bill you have and pay all expenses on time.

Another strategy for building a great score is to keep low balances on your credit cards. The amount of credit used compared to the amount of credit you have available is called the "credit utilization ratio." This ratio is weighted heavily in the calculation of a credit score. The standard advice is to keep your ratio under 30 percent. But here's an insider tip: To really maximize this part of the score, keep a credit utilization ratio of less than ten percent.

Why It's Important to Monitor Accounts Online

These days, it's essential to protect yourself from identity fraud. There have been many hackings lately, and this is likely to continue. When a fraudster makes tons of purchases on a credit card, it increases the credit utilization ratio and that can cause a credit score drop -- not to mention the fact that the thief is unlikely to pay the credit card bill!

To prevent this, take time every day--or if that seems too daunting, every few days -- and review your credit card accounts online. Look for mysterious purchases and very small amounts. Often, fraudsters test a card and run through a small amount to see if it works. Why a small amount? Because most consumers don't check their accounts often, and when they

In most cases, you'll have zero liability (or $50 at most), but by stopping fraud in its tracks early, it reduces the amount of aggravation that's required to repair the damage.

What Happens When You Miss a Payment?

There are several missteps that can cause a score to drop. Since payment history usually has the most weight in credit score calculations, let's take a look at what happens when a 30-day delinquent mortgage payment is reported to the major bureaus.

Interestingly, the higher the credit score, the bigger the drop. According to myFICO.com, the score of a consumer with a 680 score who makes a late payment drops 60-to-80 points. But a consumer with a 780 score can lose over 100! Now, the specific details in each person's credit history affects the impact of a late payment. But this still illustrates how significant a missed payment is.

Aside from a lower credit score, there are other unfortunate side effects. A credit score drop might get the attention of credit card issuers. If the issuer sees this as a red flag, it can result in an APR increase or a reduction in credit limit. In other words, the issuers may take action to protect themselves if they sense that a consumer is in financial trouble.

Also, since insurance premiums can be connected to credit scores, a decrease could end up being costly in other areas of your life, too.

How to Check Your Credit Score for Free

There are actually many different versions and brands of credit scores out there. You can get a free credit report every year from each major bureau at annualcreditreport.com.It costs money to get your credit scores, and it can be expensive to check your FICO score frequently. So keep tabs on scores (they're updated monthly) by checking out LendingTree's free credit score. It's an easy and totally free -- there's no credit card required and no obligation -- a great way to get a credit score and an overview of your current credit health.

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