Do you know your credit score? If you don’t, you may want to check it out, especially if you’re considering applying for a loan, credit, or even insurance. Lenders look at your score to determine how creditworthy you are. In other words, how likely you are to repay a debt in a timely manner. Not only can your credit score influence whether you receive credit or a loan, but also how much you will pay in interest, fees, or even a deposit. Although many people loath credit, it can play a critical role in your daily life.
What Your Credit Score Says to Creditors
Your credit score takes into consideration factors such as your bill paying history, whether you pay your bills on time, the number of accounts you have, the type of accounts you have, the amount of debt you carry, and collections. A credit scoring system weighs these factors and more to predict the risk factor in offering credit. A high credit score makes you more likely to be approved for a credit card or loan, auto financing, or a mortgage. It also plays a factor in the amount of interest you pay. A low credit score can have the opposite effect. Persons with low credit scores often are turned down for loans, pay much higher interest rates, or are required to make higher deposits or payments.
Things That Can Negatively Impact Your Credit
Obtaining and maintaining a good or high credit score takes effort and time. Here is a list of items that can lower your credit score:
Accounts in collections
Insufficient credit history
Applying for too many accounts at once
Too many credit cards
Some other things that can affect your credit are delays in paying rent, ignoring medical bills, not paying back taxes, missing utility payments, closing an account too soon, and maxing out credit cards. Paying close attention to all of these matters and monitoring your credit can make a world of difference.
Ways to Improve Your Score
Now that you know how your credit score can affect you and some factors that can bring down your score, you may be wondering how to make your score better. The first thing you want to do is see what your creditors or potential lenders see. To do so, you need a copy of your credit report. There are three nationwide credit reporting agencies, Equifax, Experian, and Transunion. The law allows you to receive a free copy of your credit report every 12 months from each of these companies. You can obtain your copy online through annualcreditreport.com by calling 1-877-322-6228 or writing to Central Source, LLC at P.O. Box 105281, Atlanta, GA 30348-5281.
You may wish to consider the following if you’re looking to improve your score:
Pay your bills on time
Reduce the amount of debt that you owe
Watch your credit card balance
Correct errors on your credit report
Set up payment reminders
Be smart about the type of accounts you have
Diversify your credit use
Avoid getting too many new credit accounts
Watch out for companies that offer to improve your credit but want an up-front fee. Federal law makes it illegal for credit repair companies to collect or require you to pay a fee before they complete the services they’ve promised. Many consumers have become victims to credit repair scams or businesses that overstate their ability to raise a consumer’s credit score, remove negative information from credit reports, or fix credit. Here are some warning signs to keep in mind: if the company doesn’t inform you of your rights and what options are available for free; companies that say they can get rid of negative credit information, even if the information is accurate or current; suggestions to create a new credit identity by applying for an Employer Identification Number to use instead of your Social Security Number; or, companies that prompt you to dispute all the information on your credit report, regardless of its accuracy. Remember to always check out a company with Business Consumer Alliance before doing business with them. Read our guide, "How-To Guide On Credit Repair" for details on things you can fix to increase your credit score.
If You Are Denied
If you are denied credit, a loan, or insurance, the creditor must inform you of the specific reasons your application is rejected or inform you of your right to request that information within 60 days. If your credit score is the reason you are denied, you are entitled to receive a free copy of your credit report. The notice should include what your score is, where the information was obtained from, and the contact number for the reporting agency. If your application was denied due to your being too close to your credit card limits, you may want to pay down the balances and reapply.
Click on the articles below for more information regarding credit, debt settlement, and self-help options:
Debt Settlement and Debt Negotiation
How to Clean Up Your Credit Report