How To Establish Credit Score
Credit score was got you down, huh? Don’t fret! Help is right around the corner to boost that credit score once again! Whether your credit score is an out-dated thing that has been ignored by your creditors or a situation that made you fall behind on your bills, this article is going to take you step by step through why you really should know your credit score, what it matters, and how to boost it fast.
How Credit Score Is Calculated
When credit bureaus start calculating credit scores, they look at your payment history. This includes the total amount of times you have made payments on time, the number of times you have missed payments, and the length of time it has taken to pay down debt. While this information is important when determining credit worthiness, they also look at things differently. For instance, they typically only consider payment history as a whole if you have not made any late payments. Late payments can lead to high interest rates, which ultimately affects your credit score.
The reason the credit card companies charge interest is because they are taking risk by authorizing the use of your credit card. They are not taking the time to verify that you can responsibly make purchases, they are just in the business of making money and they like to see that you pay your accounts on time. The only way for them to recoup their investments is to increase your interest rate, which means you end up paying thousands more every year. To protect themselves from these high finance charges, credit card companies require you to authorize every purchase with your credit card. You usually only authorize purchases when you know you can afford it or you have written evidence of why.
This means you are building credit score by missing payments. Your credit score will go down because it will reflect on your report that you have a poor credit score. However, when you get approved for a mortgage, a car loan, or a credit card, your credit score increases because the company marks it up because you have been responsible with your accounts. If you have never been late on a single purchase in the past three years, you can easily forget about building credit score by getting approved for multiple credit cards because you have never had trouble making payments.
What To Consider When Looking For Credit
It is easier to establish credit than it is to get approved for a house or a car. The lender wants to know that you will be able to pay off the debt. If you can’t, this could cause them trouble down the road. However, if you have been consistent with making your monthly payment history payments on time and you have never missed a payment, then the lender may see you as someone who is responsible. The fact that you have been responsible with your payments will increase your chances of establishing credit by building credit score.
Another factor the lenders take into consideration is your current interest rate. The higher your interest rate, the lower your credit score will be. In order to convince the lender to approve you for a mortgage or a car loan, you need to convince the lender that you can pay the monthly payment even when the interest rates are high. When you find out how to raise your credit score and lower your interest rate, then you will know how important good credit score is and how much you need it to get approved for major credit.