What You Need to Know About Your Credit Score
Having a great credit score is essential to creating better financial opportunities for yourself. It can also help you save money when you can receive lower interest rates on car loans, mortgages, and personal loans based on a good score.
Credit scores are a reflection of your financial accountability and responsibility. Because of that, banks, credit card companies, insurance companies, utility companies, and even employers and land lords are looking for you to have a good score. While many companies will take other things into account such as income and work history, you may still be denied if you have a bad score.
There are a few main things everyone should know about credit scores.
Negative information on your credit report is typically there for 7 years. Bankruptcies can be on for up to 10 years. Even if you paid off a creditor, the information will typically stay on your history for 7 years.
What do the credit score numbers mean?
* 750 – 850: A- Excellent
* 700 – 749: B- Very Good
* 660 – 699: C- Average
* 580 – 659: D- Poor
* 300 – 579: F- Worst
Your payment history and the amount of your debt compared to how much credit you have available are the two biggest factors in determining your score. Revolving credit debt (such as a credit card) accounts for more against you than personal debt such as a mortgage or car loan.
Your credit score includes:
- Number of late payments and the amount of time they were late (i.e. 30, 60, 90 days or more)
- Type and number of accounts plus how long you’ve had them
- Total amount of debt
- Public records
You are legally entitled to receive a free credit report every year. It doesn’t usually contain the credit score, you typically have to pay for that.
You can improve your credit score by keeping your accounts open and paid off for a long time. The longer you have a good account standing, the better.
It may surprise you to know that closing your credit cards can negatively affect your score, especially if it’s paid in full with no late payments associate with it. Applying for several credit cards and/or loans within a short period of time can also drop your score.
Most people think that checking your credit score frequently will have a negative effect on your credit, but that’s not the case. It’s only if creditors are checking your report frequently in an effort to provide a credit account or loan.
How do you rebuild a less than perfect score?
By making a few adjustments, your score can be raised within even just a month. But do keep in mind that negative reports can stay on for 7 years and certain types of bankruptcies and tax liens can stay on for 10 years. The best option is always to prevent a negative report.
If you do have negatives on your credit report, the best thing you can do is start adding as many positives and pay down as much debt as possible.
- Pay bills on time.
- Keep accounts open and in good standing
- Pay off collections
- Lower your debt/credit ratio as quickly as you can
Review your credit report at least once a year and fix any mistakes you find by writing a letter to the credit bureau. Mistakes are sometimes made, these can be disputed.
Be aware that the higher credit score you have, the more of an impact a late payment or collection claim will have on it. If you have a 760 score and get a collection claim it can drop your score over 100 points. People with lower scores will not be as strongly impacted. Once you have a high score though, be diligent about keeping current on your payments.
Improving your overall score is not impossible, no matter how low it may be right now, it just takes some effort and diligence to improve it. Once you do, stay diligent about keeping up with your payments and reviewing your report regularly for any mistakes.