Credit Scores
Your credit score is the biggest factor in determining how desirable a client you are to a lender. The lower your credit score, the more of an investment risk you appear to be, and the higher your score the safer an investment you seem to be. This translates into high interest rates or potential loan refusals for low credit scores, and low interest rates and more favourable terms for high credit scores.
Your credit score is a three-digit number based on your bill-paying history, debt profile and financial history. Lenders review your score in order to better predict your credit behaviour, and whether you will pay your loan on time. If you don`t know what your current credit score is, it could be sabotaging your future without your even knowing. Learn how to keep your credit score in good standing and redeem yourself if your credit has already gone awry.
Understanding Your Credit Score
While you may say it is just a silly number, this score can have a huge impact on your ability to save money and to qualify for low-interest loans. In fact, without good credit scores simply renting an apartment could pose difficulties, as your application could very well be turned down by the landlord who thinks you are too much of a risk.
Your credit score is calculated according to many factors including previous payment behaviour, how much you owe, how long you have held outstanding credit, the type of credit you use, and how much credit is available to you.
Your credit score can range anywhere from 300 to 800. A score above 620 is ideal, with the American median score being 720. Consumers with scores below 600 are usually charged relatively high loan rates, and if your credit score is really bad, you may be not be able to borrow at all.
It is important for consumers to know their credit score in order to ensure its accuracy and work towards improving the number. You can access this information by obtaining a copy of your credit report. This report is free, once yearly, and is information collected by all three credit bureaus: Equifax, Experian or TransUnion.
Steps to Repairing Your Credit Score
If you do have a poor credit score, don't despair. There are ways to redeem yourself by improving how you handle credit and will have your credit score slowly recuperating over time.
Step 1: Apply for your free credit report
You can apply for your free credit report online or by calling one of the three credit bureaus (Equifax, Experian or TransUnion). This will allow you to see your credit score and review the exact things that are hurting your rating. If there is a mistake on your credit report make sure to call and get it resolved as soon as possible to keep it from further damaging your score.
Step 2: Consider debt consolidation for lowered payments
If you are overwhelmed with debt and just can't get a handle on your finances, individuals may want to think about debt consolidation as a means of restoring your credit. While the simple act of consolidation will not improve your credit score (the credit bureau just looks at it as shifting your debt around), it will give you the opportunity to get control over your finances and pay your bills on time, which will improve your score.
Step 3: Pay your bills on time
Paying your bills on time is the most important thing that you can do to repair your score. Lenders want to see that you are consistent with payments and that they can count on your paying them back.
Step 4: Apply for new credit accounts only when absolutely necessary
Some Americans hold 20 or 30 credit cards in their wallets. While you may think that because they aren`t being used and don`t carry a balance there is no problem: you are wrong. The more credit cards you have the more of a financial risk you become. This is because you have the potential to accrue a large amount of debt at any given time.It is best to just keep 2 or 3 credit cards in use and only apply for additional ones when absolutely necessary.