I’m sure you have tried applying for credit before, so you’ve heard the term credit score. However maybe you’re not exactly sure what it signifies. Your credit score is a number that ranges between 300 and 850. This score takes into account amount of debt, bill paying ability, number of credit lines, length of credit history, and assortment of credit. So why does credit matter? Basically your credit score is your key to opportunity. If you possess a good score it can help unlock financial benefits such as auto, business, and home loans. On the other hand a bad score can prevent you from financing a car or leasing an apartment.
That being said, you should try to shoot for getting a credit score above 720. This can help you get preferential financing terms. Some examples of this are; lower interest rates on your auto, credit card, or mortgage loans. However there is a catch. Your credit score isn’t carved in stone. Unexpected circumstances like, increased cost of living, job loss, or medical bills which can sometimes lead to missed payments can alter your financial well-being.
So what can those seeking credit for the first time do to build their score? Start of small by getting a smartphone contract and make your payments on time. Do this for 12 months and then open up a credit card with a small balance. When you use it make sure to pay it off every month and make sure to never pay it passed the due date or miss a payment. It’s possible that a single 30-day late payment could drop your score somewhere between 50 to 110 points. Also make sure that you don’t take out too many lines of credit. These are the main factors that make up 80% of how your credit score is determined.
The best way to check your credit score is to get a free report. By law you can do this once a year for free from the three major credit bureaus: Experian, Transunion, and Equifax. You’ll only need basic personal information such as your name and SSN to access your report. There are also apps and websites that you can use to check your credit score for free. It’s important that you check it at least once a year to make sure that your credit is in good shape. Also to make sure that someone hasn’t stolen your identity and opened account that you weren’t aware of.
Once you understand, you will be able to start managing your credit using these simple guidelines.
1. Remember which factors make up your credit score.
2. Exercise good spending and payment practices.
3. Make sure to check your score once a year and inquire about significant changes.
4. If you plan on borrowing money for the first time, be patient and go slow.