Why is it important to know your credit scores? If you’ve been considering obtaining a personal loan, looking at car insurance rates or even looking at whether you are eligible for a home loan you should take a close look at how your credit score is calculated. By understanding the way it’s calculated you’ll be able to obtain the information you need in order to make an informed decision regarding what kind of credit you should receive. Knowing what you have now will help you find a loan, insurance or new credit card and prevent you from being one of the millions of Americans with bad credit who can’t get a loan, new credit or even maintain the right amount of credit they already have.
So what is the most important element in determining your credit score? The answer is simply your credit payment history. Every time you make a payment to a creditor, it goes directly to your credit report as a positive action. It is important to note that every time you pay off an existing debt such as a car loan, mortgage or student loan, it is not reported as an action. These actions are called “paid off” and remain on your report for up to seven years.
The types of actions that contribute to your credit score include opening and closing new accounts, paying medical bills and utilities, and buying a new home or a vehicle. Your credit score determines how successful you are at keeping your financial life running smoothly. Having good credit can allow you to secure a better deal when borrowing money, get lower interest rates on loans and credit cards, and even get approved for more credit cards and auto loans. Even if you have no credit at all, you can still find a variety of lenders willing to offer you low interest rates on everything from auto loans to credit cards.
Now that you are aware of what your credit score is, how will you be able to improve it? Well, you’ve learned all about how credit is determined, so now it’s time to find out exactly what you need to do to increase your credit score. The first thing that you need to do is pay off any outstanding debt that you have. If you have outstanding debts like credit cards and store accounts, pay them off as soon as you can. This will help to increase your available credit and, in turn, keep your FICO at a good level.
To maintain the ideal credit score, it is important that you pay your bills on time every month. One thing that many people overlook when trying to improve their credit is their collections department. They tend to ignore the collectors and hope that they go away, but if you fail to keep up with the collection departments, your credit score will quickly drop.
Another key area of credit repair involves avoiding late payments and making all of your monthly payments on time. If you don’t have an income stream to rely on, you might think that you can just make your minimum payment, but this isn’t always the case. Many lenders consider late payments to be a sign that you aren’t earning enough and are simply trying to keep your creditors happy. As a result, they are going to continue to pursue you and will continue to lower your score. To avoid having your credit pulled in the future, be sure to keep your financial responsibilities in check by paying your bills on time.
Finally, it is important to understand your rights and how they may affect your credit score. You have the right to dispute any incorrect information with the credit reporting agencies and you can have negative and derogatory comments removed from your report. If you work hard to improve your financial standing, your credit score should rise over time. However, be sure that you work within the guidelines of your credit score and remember to check your reports for errors on a regular basis.
Overall, there are many reasons why credit scores are important to you and your financial future. If you want to purchase a home or vehicle, open a bank account or even rent an apartment, credit score plays a huge factor in the approval process. It is important to work hard to maintain a high credit score and avoid falling behind with your obligations. This can lead to a period of financial instability and will result in a low credit score, which will lead to even more financial trouble.
