Credit is crucial. In fact, your credit score determines your ability to procure auto loans, credit cards and home mortgages. Some might say that it can make or break your financial future.
Main Credit Scoring Agencies
There are three major consumer credit reporting agencies that operate in the United States: Equifax, Experian and Transunion. When a lender considers your application for a new loan, they go to one of these agencies to look up your credit score. To ensure that its calculations are accurate, the reporting agency will pore over the details of your financial past and look for a few key indicators of your financial well-being.
Good Credit Behavior
To avoid damaging your credit score, you should maintain a debt-to-credit ratio of 30 percent or less. This means that if you have a credit limit of $10,000 you should owe no more than $3,000. This is why it’s so important to pay off your debts on time. By consistently carrying balances and failing to pay off your debts in full each month, you’re slowly increasing this all-important ratio.
The Role of Credit History in Your Credit Score
Your past credit payment history is a crucial component of your credit score. The effects of missed payments tend to be cumulative on your credit-score. Whereas missing a single monthly credit card bill every five years won’t devastate your credit score, missing it every time will tank your rating.
The length of time that you’ve used credit is a smaller but still important factor in your credit-score calculation. Your credit score will rise for every year that you keep your various lines of credit open and in good standing. This doesn’t mean that you should apply for new credit cards or loans every month. In fact, frequent credit applications will negatively affect your credit score as well but if you can control your impulse to max out your credit cards adding another one will increase your total credit limit and thus your balance will be a smaller percentage of the total.
Know Your Rights
Take advantage of a new federal law that requires all three of the reporting agencies to provide consumers with annual credit-score updates upon request. If you see any unusual activity on your report or suspect that you’ve received the wrong credit history, you’ll need to contact the agency that issued the document and determine what went wrong.
“Upping” your credit score isn’t rocket science. You can slowly but steadily boost your attractiveness in your creditors’ eyes by making a few simple changes to your financial habits. In the end, a consistently improving credit score will be your reward for taking a measured approach to your finances.
See Also:
- Five Activities That Can Ruin Your Credit Score
- Tips to Rebuild Good Credit and Your Financial Independence
- How to Start Your Credit History
- How to Hurt Your Credit Score
- Credit Cards That Pay You Cash
- Get Out Of The Debt Trap and Up your Credit Score
- Improve Your Credit Score Through Smart Borrowing
- How to Calculate Your Credit Score
Find out more about how to up your credit score with these Resources:
- Your Credit Score: How to Improve the 3-Digit Number That Shapes
Your Financial Future (4th Edition) (Liz Pulliam Weston) - Hidden Credit Repair Secrets: 2nd Edition
- The Credit Repair Black Book: Credit Repair Secrets and Strategies the Credit Bureaus Won’t Tell You
Image courtesy of Scott Chan / FreeDigitalPhotos.net