Credit scores and how they are determined can be confusing. Your credit score is calculated by plugging the information from your credit report into a credit score formula. You may have many credit scores based on who provided the score. Bad credit can haunt you and your credit history for decades. Credit reports may affect mortgage rates, credit card approvals, apartment requests and even your job application.
Trust me I know, I defaulted on my school loans, sending me into a decade of bad credit, high interest rates and unable to purchase a car without a cosigner. Here are five simple steps to keep you from making that mistake?
First, pay off your credit card bill or loan payment on time and in full every month. If you're credit card bill is consistently too much for you to pay off every month, you are overspending and need to cut back on card use. A credit card is not an extension of your income.
Second, do not reach your credit limit every month. Lenders prefer to see that you have a lot of available credit that you are not using. The Consumer Financial Protection Bureau has information on factors that can affect your credit score.
Third, do not open many different credit cards within the same amount of time. It’s better to have less credit, and the cards open for a long time, than more credit open for a short time.
Fourth, if you know you're going to be late on a payment, call your bank or credit card company ahead of time to see if there is anything you can do. Depending on the lender, they may be able to extend the time for your payment or figure out a way to lessen the impact on your score. Avoidance only hurts YOU, be proactive!
Lastly, it’s important to check your credit report annually. Forbes stated, 70% of credit reports contain errors, so there is a chance that yours does as well. Go to annualcreditreport.com for your FREE copy of your credit report from the three credit bureaus; Equifax, Experian and TransUnion to ensure all your information is correct and up to date. This alone could increase your score quickly. Also look for suspicious activity or accounts you do not recognize. Reviewing your credit report annually can help you catch early signs of identify theft.
Your credit score is your financial footprint that either opens doors to credit or slams them shut. Be proactive with paying bills on time and take your financial footprint seriously, so you do not lose a decade, like me, in establishing yourself financially.
What have your experienced with your credit score?