Today having a good credit score is more important than ever. Your credit score determines whether lenders approve you for a mortgage, a car, a credit card and even an apartment and a job. You should check your credit score at least once a year to make sure it’s accurate. Keeping your number in the good range (between 720-800) is vital if you want to be able to acquire any of these things without paying a higher interest rate.
What determines your credit score?
There are a variety of things that determine your final credit score. But the two that impact it the most are your payment history and the amount of debt you owe. If you are late beyond 30 days a few times your score becomes lower as a result. How long you have your established credit, how many times you apply for credit, and number of newly opened accounts also affect the final score. Having too much credit can lower your score in much the same way as having little or no credit.
There are from time to time mistakes made to a credit score. If you feel that your score is much lower than it should be, request a report. There are companies online that will send you a copy of your credit report from the three major companies for free once a year. Request a copy and review it. If you find that there are false items or amounts on it, send the necessary paperwork into one of the three companies so that they can verify your claim and then remove the error. Just don’t expect immediate results. This process can sometimes take 2 to 3 months.
Little or no credit
When you first start out on your own you barely have any credit in your name and this can present many of the same denials for credit as someone who has bad credit. When you only have one source of credit, say a student loan, it doesn’t give a lender much to go on. After all making payment to one institution is easy. If this is the case for you, acquiring more credit can actually improve your credit score and make you more appealing to potential lenders. Try and acquire a secure credit card designed for people with no established credit. The card will have a low credit limit, probably just a couple of hundred dollars, and a higher interest rate than a regular card through your bank. But, it is a way to establish yourself in short order. Usually, if you have the card for 6 months to a year and you make your payments on time you can then apply to other companies that offer one with a higher credit limit.
Restoring bad credit
If you’ve made several late payments, missed a few payments and even defaulted and have a few in collections, you can still restore your credit. It will take a bit to get up to the level banks desire, but with each payment made you’ll start to reverse the downward spiral. For instance, let’s say you save three cards in collection and you’re a month behind on your car. Since the cards are already in for collection, it’s best to bring your car current first. Once you have the car caught up then you can make arrangements one by one to pay off the balances on the three credit cards. Start with the lowest one first so that you reduce the number of bad marks against you faster.
The need for credit
You need credit to buy a home, a car, to go to college and for unexpected emergencies. But you should never take on more than you can handle. If you make a decent salary and can afford these things it’s fine. But if you are taking on more lines of credit because you do not know how to handle money and live within your means, it’s only a matter of time before you can’t keep up with the payments and your credit score falls. You should never use credit cards to pay bills or as a means of buying things you otherwise couldn’t afford. They are a great resource to have waiting in the wings in the event you have an emergency like a home or car repair. Many people also use their credit cards to earn points towards air travel, gas, food and supplies. Those are all ways of using them wisely.