Your Credit Score: What You Need to Know
If you have read anything about personal finance, you have heard about your credit rating and history. Still, you may be confused about what people mean when they refer to your credit score. Here is a quick guide to credit.
What Your Credit Score Is
Your credit report shows your credit history, a record of every time you have borrowed money. It includes information such as how long it took to pay off loans and whether your payments were ever late.
Your credit score is a numerical summary of your credit report. It is like a grade for your money management performance.
When It Matters
Naturally, lenders want to know you will be prompt and reliable when paying them back. But others want to know about your credit history, too.
Many employers consult a consumer reporting agency before making a job offer. In some cases, it helps firms protect company funds. In other cases, employers believe that your credit history may offer clues to your character and the ability to make good decisions.
Rental applications must often be accompanied by credit checks. A poor credit score may result in your application being rejected. Alternatively, you may be approved as a tenant but need to put down a larger deposit or pay an increased monthly rent.
How To Raise Your Score
With so much riding on your credit score, you may be wondering how to improve yours. The first step is finding out exactly what your credit report says. The Consumer Financial Protection Bureau recommends that you examine your report at least once each year. Raising your score can take time, so begin now. Here are some key actions to take.
Correct Mistakes
If anything on your credit report looks unfamiliar or suspicious, investigate further and dispute errors. Accounts you do not recognize may be signs of identity theft. Inaccurate information should be corrected immediately.
Pay Bills on Time
Late payments can have a negative impact on your credit score. It is crucial that you pay bills in full, on time, every month. Automating payments can make this easier. A history of late payments can stay on your report for years, but recent activity is more important than older actions, so your score may go up after just six months of on-time payments.
Do Not Carry Debt
Use around 30% or less of your available credit. Pay off debts early if possible. If you have credit cards, pay them off and stash them away so you will not be tempted to spend money you do not have. Be careful about closing accounts, though, as doing so can inadvertently hurt your credit score.
