If you have never given much thought to your credit and what your credit score is, then you have probably never applied for a loan, invested your money or asked for a change to your credit line. If your ever have to do any of those things, however, your credit score will become very important to you.
Credit Gives You Access
You see, you may not even be eligible for a loan if your credit score is too low. A lot of creditors will base their loan approval process on the applicant’s credit score. They can’t see your credit history and all the changes you have made over the years or even if your credit score has improved from one year to the next. All they see is a number that reflects your current score. If it isn’t very good, then you can bet you will not be approved for the loan you are asking for.
Or you may be approved, but for a lower amount. You will see that having a bad credit score affects not only what you are eligible for but what rates you get and how much money you can borrow. For example, if your credit score is very low, then you may only be eligible for credit cards that have high interest rates and annual fees. Once you get better credit, however, you may begin to be eligible for better credit card offers.
If your credit is below average or below what is considered decent, then the credit card offers you are getting may not be worth accepting.
Good credit means that creditors ar more interested in giving you good deals and extending to you a measure of faith. They are more likely to trust you and believe that you will pay back your debts on time, so they are more likely to give you low interest credit offers and sizeable loans. There is a whole other world open to you once you have better credit.
What Affects Your Score
If you don’t know whether your score is good or not and you have given your credit much thought, then you probably don’t know for sure what causes your score to drop or increase. It’s a number of factors, actually. Let’s look at these, so that you know what you have to pay attention to as you spend, invest and make payments.
Your usable credit is one of the largest factors in determining your credit score. If you have $2,000 in potential credit, but only $200 of that is available right now because of how much debt you have to pay off, then that’s not much usable credit. That can hurt your credit score. Now, if you rack up a large sum on your credit cards but then pay that off by the end of the month, that looks pretty good on your credit report. If you allow that sum to stay there and only pay off the minimum, however, then that reflects poorly on you.
Another factor that affects your credit score is the timeliness of your payments. If you pay bills late, then it can hurt your credit score while consistently paying them on time boosts your score.
You also affect your score by applying for a lot of credit over a short period of time. For instance, if you apply for multiple credit cards or several loans in a 6-month period, then it can look to creditors like you are not very smart with your finances, and it can hurt your credit score. It is best to spread out your credit requests over time.
If your debts go into collections or you file for bankruptcy, these can hurt your credit score more than anything. You need to do what you can to prevent these from happening and protect our credit score from major events like this at all costs.
These are just a few tips to help you achieve better credit, and if you have not checked your credit score before or for several years it’s a good idea to get a free credit report and find out where you stand. That can help you plan out what you need to do to correct your credit score or maintain it.