Many aren’t aware of this, but your credit score can affect everything from whether or not you are able to get a loan and how high your interest rate will be, to your ability to get car insurance, a job, or even rent an apartment. Lenders can use one of many different credit-scoring models to determine your credit worthiness. Different models can produce different scores. Below are some tips on how credit scores are determined and how to maintain a good score.
What you need to know about your credit score
Your credit score is a tool used by creditors to determine your ability to repay your debt. Scores range from 300 to 850 with the vast majority of people having scores between 600 and 800. Your credit score is calculated based on factors such as payment history, outstanding debt, length of credit history and number of inquiries.
You can repair bad credit!
Life is unpredictable and situations can arise that inhibit you from paying your bills on time. Unfortunately, this could cause your credit score to suffer. The good news is it can be fixed.
- Pay your bills on time.
- Reduce the amount of debt you owe.
- Keep balances low on credit cards and other revolving credit.
- Pay off debt rather than moving it around.
- Don’t close unused credit cards as a short-term strategy to raise your score.
- Don’t open new credit cards that you don’t need, just to increase your available credit.
- If you have missed payments, get current and stay current.
A wide variety of misconceptions float around about what you should and shouldn’t do to manage your credit. It is important to keep the following in mind:
- Your score will drop if you check your credit – It won’t.
- Credit bureaus know your income – They don’t!
- Credit repair companies can fix your credit – They can’t – They only make it worse.
- Paying off credit cards and closing the accounts will help your score – It doesn’t!
- The credit agencies use the same criteria for determining a credit score – They don’t.
Check your credit report often
Your credit report contains the data used to calculate your score and you want to ensure it is accurate. In particular, check to make sure that there are no late payments incorrectly listed for any of your accounts and that the amounts owed for each of your open accounts is correct. If you find errors on any of your reports, dispute them with the credit bureau and reporting agency. You can get a free credit report three times a year – One from each credit reporting agency – Transunion, Equifax and Experian. Just visit annualcreditreport.com – freecreditreport.com is NOT free!
Understanding your credit score and what factors impact it, managing and taking responsibility for your debt and fixing errors in your credit history (if they exist) will help you maintain a good credit standing.