Credit Score 101: What It Is And How To Turn It In Your Favor
A good credit score can open the door to a lot of financial advantages and thousands of dollars in savings in the long run. With a good credit score, you can get a car loan, a mortgage and even an insurance policy much easier and quicker. When you have bad credit score, on the other hand, not only do you get higher interest rates, it can lessen your chances of landing a job.
What is a Credit Score?
Your credit score is a three-digit number that runs between 300 and 850 and measures how worthy you are of credit. Banks use this number to determine how risky it is for them to extend you financial assistance. The lower your score is, the riskier it will be for the bank to lend you money. This means that you will have to pay higher for a loan.
The percentages could vary depending on a person’s credit score. The lower your credit score is, the higher you will pay in the end. This gets worse for long term loans. Thus, getting a higher credit score makes you more likely to be extended a loan to as well as be offered savings. To find out your credit score, a number of online sites can offer this information for a fee.
When looking for ways to improve your credit score, the first thing to review would be your own credit report for accuracy. While a bank is mandated by law to be diligent in its commercial affairs, mistakes can happen once in a while. Sometimes, the information that is given to the credit agencies are erroneous and they do not usually fact check unless they are requested to do so.
An instance could also arise where you could be a victim of misidentification. If you happen to have a common name, someone with the same name could have fallen behind on payments and such fault could reflect on your record. All of the three credit agencies are obliged to provide you with a free report once a year. Use these to monitor the accuracy of the information about you.
Never Pay Late
In lending money, the primary concern of banks is whether borrowers could repay the money they borrowed and how faithful they do such. When you pay late, you give them a signal that you could be unreliable. Lenders are very sensitive and they will look for any fault they can use against you. This could include missed payments or late payments. Even just being one day late can already lower your credit score.
Thus, when you borrow money, the best policy would be always to pay on time. Consider the due date to be the latest that you will comply with your obligation, although they would not bother when you pay on an earlier date.
Reduce Your Credit Card Balances
Credit utilization amounts to 30 percent of your credit score. The closer you are to reaching your credit limit, the lower your score will be. This only means that just because you can virtually charge as much as you can on your credit card does not mean that you should max out your balance. It is recommended that you use only 25 percent of your total available credit than to use it until it almost runs out.
Young people often find themselves in a double-edged situation where they need a credit history to get a lender to extend them credit. However, there are some things that have to be done first. One step is to be an authorized user on your parents’ credit card, or somebody who really trusts you. This will establish sufficient credit history and will greatly help when the time comes that you would have to apply for your own card.
If you cannot find anyone who would be willing to lend you his or her credit card, some banks can provide you with a secured card. You can deposit as much or as little as you want. Such bank will issue you a card that has that enough credit that you can spend. When you show that you play by the rules, you can use this to establish your credit reputation.
If you have had your credit card for quite some time already, you might not even know anything about your credit score. However, you have more control over this than you may realize. It is up to you to open the door to a lot of advantages when you get a high credit score. Do you have some other tips in mind? Share with us your thoughts in the comments below.
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