Everybody has to use credit, whether buying a car, buying or renting a home, or sometimes even applying for jobs. The fact is using credit is almost unavoidable. You will need a good credit score to have power as a borrower and lower interest rates.
You Get Credit for All Your Credit, Good or Bad
We have established that inevitably, you will have to borrow money for high-cost items you need in your life, but why spend more than you have to on a high-interest loan? The first thing a lender will look at is your credit score. Your credit score is determined by all data of your past credit reporting arrangements sent in by creditors, such as credit card companies or lenders. This score will ultimately decide the outcome of your loan. Let’s discuss what a good and bad credit score looks like and the importance of making good decisions with your credit. Then, we will examine what actions affect your score and how the data is collected. When we are finished, you will have a new appreciation for what your credit score can do to help you.
A Good Credit Score’s Value is in Your Interest
A good credit score will make or break a deal, but what is a good credit score? What is a bad one? To answer this, we have to look at your past credit behaviors from all the credit reporting agencies you have dealt with in the past. These behaviors, good or bad, are reported to credit bureaus, who then compile the information, assess it, and rank you on a scale from 330-830. A good credit score is somewhere above 700. A score on the higher end of the scale will show a lender you are reliable with money. Some actions that keep your score above 700 are:
- You are paying your credit card bill in full or on time. Late payments are the most common mistake people make. If you don’t have the money, don’t spend it!
- You are paying back all of your loans on time. The people who lend you money will also report nonpayment or late payment to the credit bureau. Be sure you can maintain these payments for the entire loan length before making the deal.
- You are paying your rent on time. If you rent your home, your landlord also has the right to report you to the credit bureau. If you don’t pay your rent or send it in late, you are subject to a drop in your credit any time you are on a lease.
Take Control of Your Credit
Your actions will cause your credit score to move on the scale. Paying close attention will help you to stay in control of it. Some activities affecting your credit score include paying your bills, rent, and loans on time. This represents the most common credit-affecting areas, but others exist, such as:
- You are opening many accounts in a short time. When you apply for a credit card, you ask someone to inquire about your credit history. Unfortunately, credit queries affect about 10% of your credit score.
- You are closing many accounts in a short time, especially if the cards still have balance. This is a red flag to the credit bureau. When you close tabs with a balance, you are showing them that you cannot afford to fulfill your agreement.
- They are defaulting on a loan. Not being able to finish a loan contract is a big problem. You should consider this before accepting a deal.
- Check your credit score often. If you don’t know your credit score, many services can show you what it offers, and many are free! Know your score. Knowledge is the power to stay debt-free and credit-positive. Check your score at least once a year.
A good credit score will be valuable to you throughout your adult life. Use these tips and pay close attention to your credit behaviors. Every credit decision you make, whether good or bad, will follow you for years to come. So, assess your choices thoughtfully to stay out of trouble! Click here to see how you can begin building your credit today.
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