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How Important is a Good Credit Rating?

The importance of a good credit rating in today's marketplace cannot be understated. A good credit rating is not just about getting a credit card or a mortgage loan anymore, although both of these are great reasons for managing your finances well.

Credit cards have become a way of life for a huge percentage of our society. Several years ago, most credit card users paid their balances off monthly. This is actually the smartest way to use credit. It allows you a great degree of convenience and more flexibility in the timing of your purchases.

Today, most credit card users are paying less than the full balance each month, and often just the minimum payment due. This effectively inflates the cost of the items purchased because of the interest added on each month. In fact, using your credit card to purchase an item on sale usually doesn't provide any true savings at all unless you pay it off in the first billing cycle.

Having credit and using it responsibly will provide you with a good credit rating. That only comes by paying your bills on time each month, and not borrowing beyond your ability to pay back. A poor credit rating means you will be offered credit at a higher rate than those with a good credit rating.

So how good does your credit rating have to be to be "good"? Credit scores range from 300 to 850 and the three major credit bureaus each score your credit according to their own set of criteria. These criteria include: number of credit lines, amount of available credit, amount of credit you have used, length of time your credit lines have been open, monthly payment history, number of late payments, legal judgments, accounts that have been referred to collection, bankruptcies, foreclosures, charge-offs, and settlements.

Also considered is the number of credit inquiries made. Each time you attempt to obtain a credit card, car loan, or mortgage loan, for example, a copy of your credit report is requested from at least one of the three major credit bureaus. Although there is an allowance for "shopping" for credit, overall, too many inquiries where you are looking to obtain new credit will lower your credit score.

So what's a good credit score? While each credit grantor has their own set of standards, there are some general guidelines. Most recently we have seen tightening of the guidelines in the mortgage markets. The 100% financing option is now most difficult to find. Most mortgage lenders now want to see credit

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