Credit scores are determined using different criteria. It basically comes down to how much you earn, how much you owe and when you pay your bills.
It is important to understand that your credit score only incorporates the information contained in your credit report and does not reflect additional information that your lender may consider in its appraisal.
Your credit report does not include, for example, such things as current income and length of employment. However, because your credit score is a key tool used by lending agencies, it is important that you maintain and improve it periodically.
What Will Leave a Black Mark on Your Credit Report?
For example, if you are late paying your telephone bill, your phone carrier may report it to any combination of the three main credit reporting agencies (not all creditors report to the same agencies).
When this happens, you will get a mark against you on your credit report. And this, in turn, has a negative impact on your creditworthiness.
However, there are other things that can count against you, such as:
- Having too many credit accounts at any one time.
- Closing accounts that have a remaining balance on them.
- Too many open accounts, regardless of whether or not they have a balance.
- Lack of a credit history.
- Total outstanding debt that is too high.
- Having bankruptcy on your record.
- Not making payments on time.
- Not enough of a credit history.
- Having too much debt for your income (commonly referred to as the debt-to-income ratio).
- Closing too many accounts within a short time frame.
- Utility bills that go unpaid.
Each of the above things can raise a red flag on your credit report.
How much any single one of these affects your credit score is hard to say, as each agency uses a different formula for calculating their score.
At the very least, the things on the list don’t look good. The more things you are doing on the list, the worse your credit score will suffer.
Okay, now that we got the list of things to avoid out of the way, it’s time to get proactive.
The good news is that there are things you can do that have a positive effect on your credit score.
On top of that, they will also save you money in the long run and improve your overall state of financial health.
- Only apply for credit when you need it, and do your best to space out when you apply for new credit accounts.
- Buy things with cash instead of credit.
- Stick to a budget so you don’t spend more than you earn.
- Pay more than the minimum due on your credit cards.
- Build up a savings account so you have money for emergencies.
- Check your credit report for accuracy and make corrections where needed.
- Pay all of your bills on time.
- Correct errors on your report promptly.
Anybody who is financially aware has heard of a credit score and understands that it’s better to have a higher one as opposed to a lower one.
Lenders, employers, landlords, and others may look at your credit score before deciding whether or not to continue doing business. Now that’s an important number!
Think about it, if your credit score is too low you may not be able to get a loan, the job you want or live in the home of your choice.