The importance of a good credit score cannot be undersold, it is an asset that can support you for years to come. It can aid you in getting loan approval on your next car or next home, and by assuring you more favorable interest rates. Credit score can literally affect almost your whole life from now and in the distant future. So it goes without saying, that it’s best to have the best credit score possible and this can only be achieved by first knowing the factors that can impair the amount you have. Below are some of those factors.
By far and away, you are at risk of losing your hard earned credit score by not paying your debts. This will become evident when you fail to pay all of your bills on time, which can result in your credit report being marred by negative information. If this situation persists, your score can continue to drop leading to a lower credit score, which can severely limit your chances of getting loans and other financial opportunities available to you.
The solution is to make sure that all of your debts are being paid on time, even if it means having to make some cuts along the way. If you have to choose between paying a certain debt or a utility bill, for example, you should pay the utility bill first. In case of unemployment, keep in mind that you can file for unemployment insurance to protect yourself and your family. Unemployment insurance may also affect your credit report, but only in a small way and it is not unlike that of a late payment on a utility bill.
With the majority of credit reports, the amount of debt a person carries is one of the biggest factors a credit reporting agency uses to determine their credit score. It goes without saying that a high level of debt can be detrimental to your credit score. But maybe you’re wondering why debt matters.
Consider a debt of a high amount of debt versus a debt of a low amount. Let’s compare two individuals who both have a credit history of 10 years, an excellent payment history, and a very low debt-to-credit ratio. While both credit ratings are very good, the one with the higher credit history has more access to various types of credit due to their history. They may be able to pay off their debts without much trouble.
However, the second person may have a harder time dealing with a higher amount of debt considering they have a smaller income. Managing a high amount of debt may mean they have to devote a bigger portion of their income to paying off their debt and this can affect their ability to pay bills and other debts on time.
So, high debts coupled with lower incomes may result in negative details on your credit report. To rebuild his credit quickly, the second individual might need to improve the amount of debt they are taking on, while simultaneously increasing their income.
It is not easy to establish and maintain a good credit history, it takes time, effort and discipline. This is to say that older credit histories have more weight than those with less than five years of credit history, for example. This is because it is easy for someone who has a bad history of paying bills to mend their ways and improve their credit score, over a long period of time. A younger credit history, however, is not likely to be marred by any negative history because it doesn’t have a lot of activity on it.
Also, since this is a credit rating already in the making, it will have more room to rise if the applicant is responsible and pays off their debts. The low level of debt and the payment history should improve over time with every added payment the applicant makes.
This is another factor that is commonly overlooked by many, but it is actually very important. Different types of credit scores are given to different types of history, which differs from one application to the next. Your credit score, for example, can be used to allow you to take out a mortgage on a home and it can be different for a lease on an apartment.
With the above information, you are hopefully gaining a better understanding on what credit score is and how the factors that make it up could affect it. If you came to realize that your score is not as good as you thought it was, you may want to take a few proactive steps to improve it.