A consumer’s credit score directly influences their opportunities to be approved for loans or establish revolving credit accounts. It is also important to consider that credit scores have a profound impact on interest rates in terms of what a bank or lender might offer a consumer. They are a foundational aspect of how credit works. A consumer having a low credit score could be denied credit or be considered high risk, meaning if you are approved for credit, you will experience considerably higher interest rates than a person having an outstanding credit score. During the term of any loan, the amounting fees from interest can cost many thousands of dollars.
A person who currently has a good or outstanding credit score must do their best to properly maintain their score. It is also very important for a consumer having a poor or fair credit score resulting from past misuse of credit to attempt to rectify the poor credit score as soon as possible. There are many processes in which a person can rebuild their credit score, potentially enabling them to get better interest rates on revolving credit and loans.
Many people have issues on their credit report which they are unaware of. Identity theft is a common problem in the United States & consumer debts are frequently sold into a shady industry. The first step in determining if you have any outstanding issues is to get a copy of your credit report. AnnualCreditReport.com allows you to see your credit reports from Experian, Equifax & TransUnion for free. While many other sites sell credit reports and scores, a good number of them use negative billing options and opt you into monthly charges which can be hard to remove. If you find errors in your credit report, you can dispute them using this free guide from the FTC.
Most certainly, it seems common sense for a consumer to pay their debts in a timely manner, but it is often overlooked. Undoubtedly, late payments are commonly the source of serious drops in reported credit scores. Late payments are the most frequently occurring negative information on credit reports. Merely making the minimum payment before the due date every month without exception will help to rebuild and maintain the consumer’s credit score.
Without a doubt, any kind of a late payment can be incredibly detrimental to one’s credit score. Simply skipping or accidentally missing a mortgage payment can extensively damage a consumers credit score, taking up to seven years for the impact of the late payment to lessen.
Even more damaging to a consumer’s credit score than late payments, would be having an account that is in arrears be sent to a collections agency. If an account has been sent to a collections agency, the creditor has gone without receiving minimum monthly payments many consecutive months. After an account has been sent to a collection agency, damage to the consumer’s credit report is unavoidable, regardless of whether the account ever gets rectified. Often, once an account is sent to a collections account, even if the balance is paid, the negative mark stays on the consumer’s account for at least seven years.
Another thing to keep in mind is inquiries will be made on a consumer’s credit report any time the consumer makes an application for revolving credit or any type of loan. When these inquiries are made, they are typically through TransUnion, Equifax or Experian credit reporting agencies. Once an inquiry has been recorded to a credit report, it typically stays on the report for no less than two calendar years. Most often, those inquiries being a year old or less, affect the credit score slightly in a negative way. Too many inquiries over a very limited time span can significantly impact one’s credit score.
In the event of seeking out the best car loans or mortgages, it is inevitable to have multiple inquiries on one’s credit report. However, in this case, multiple inquiries, as long as they are for the same reason and within a timeframe of 40 to 45 days will not adversely affect a consumer’s credit rating. Typically, several inquiries of this type in this situation are only counted as one single inquiry. It is essential, if one is to maintain a good credit score or improve a poor credit score, to keep inquiries to an absolute minimum.
Strange as it may seem, just the fact that a consumer has credit cards affects their credit score. Also, it is important to consider how the payment history on those cards can affect one’s credit score. Not to be left out, the balances on these credit cards are also calculated into one’s score. When the available credit on a card drops below 65%, the consumer’s credit score could be damaged as this reflects a high balance to credit limit ratio. Regardless of payments are made on time or if more than the minimum payment has be paid, having a high balance to credit limit ratio adversely affects one’s score. Essentially, a credit card with a high limit of $2000 should not carry an average daily balance exceeding $700. By keeping the used credit limit below 35%, debt to income ratios stay within a good range. It is also imperative to make each payment on time, and it is always a good idea to pay more than the required minimum payment.
Another good rule of thumb is to actively pay down high balances while using credit cards in a responsible and proper manner. Taking one’s life situations in to account, it may be a good idea to disperse your credit card balances over several cards, keeping the available credit at 65% or above on each card, rather than pushing one card’s balance to the credit limit. If the consumer opts to do this, it is essential that payments be made in a timely manner, and all accounts remain listed as having a positive status. Doing this will not only maintain one’s credit score, it could also potentially improve it.
The idea of spreading credit card balances over many different cards could potentially help a consumer’s credit score. It is important to consider, however, that the interest being paid toward the balances be accounted for. It may be beneficial to the consumer to consolidate current balances to one card with a low interest rate, rather than split up the total amount owed over many cards having higher interest rates. It is essential to take these interest rates into consideration if one is to make the best decisions toward improving credit history and credit scores.
Another point of consideration in determining a consumers credit score is how long the revolving account has been open. A positive credit score is a reflection of a good, positive standing with every creditor the consumer deals with, regardless of the account activity. Simply put, the longer a positive credit history is maintained, the greater the positive influence on the score.
In essence, it is a good idea to keep old accounts that are no longer in use open. If a consumer has credit that is not currenty in use, rather than terminating the account these cards should be put away and the consumer should refrain from using them. Having several open accounts but only using a few can be a positive factor in raising a credit score, but too many cards overall can have an adverse affect.