Part of achieving financial wellness is understanding your credit score, what it means, how it’s calculated and learning practical strategies to improve it. Understanding debt utilization ratio and the difference between hard checks and soft checks or between revolving credit and installment credit are just a small part of the story when it comes to seeing the full picture of your credit. There are simple steps people can take to improve their credit score but before we explore some of those strategies, we’re going to look at what makes a good score, how it’s calculated, where you can check yours, and why it all matters.
What is a Credit Report?
A credit report is a summary of how you pay your financial obligations. It contains information based on what you have done in the past. Lenders use it to verify information about you, see your borrowing activity and find out about your repayment history. This is the information on your credit report that is used to determine your credit score.
What does a low credit score mean?
A low credit score doesn’t mean you’ll never be able to borrow. Some places might still lend you money, although at a higher interest rate. This is one of the ways you’ll find your credit score really matters; the better your score, usually the less you pay on interest. In other words, a good credit score helps you save money.
What’s your payment history?
This is the most important factor affecting your credit score. Prospective creditors want to know that you are going to pay them back. Your payment history covers all your consumer debt: credit cards, mortgage lines of credit, student loans, car loans, cell phone payments on contract, etc. Creditors want to see a long-established history of managing credit. There’s nothing more frightening to them than somebody walking out of the woods with a clean slate. A good credit history is built over time and that’s something you can’t lifehack.
How Much is Owed?
When you apply for credit, how much you already owe really matters to a lender. Your current payments will determine if you can manage any more payments in your budget for the additional money you borrow.
Here are some steps that will get you a better credit score!
- Review Your Credit Reports
- Get a Handle on Bill Payments
- Consider Consolidating Your Debts
- Don’t close a credit card account
- Use Credit Monitoring to Track Your Progress
Your credit score is a single number that can cost or save you a lot of money over the course of your life. You will get usually better interest rates if you have a good credit score, which means you can pay less on every line of credit you take out. However, it is up to you, who needs to ensure that your reputation stays secure so that you have more borrowing options if you need them. But the sooner you begin working to improve your credit, the sooner you will see results.
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