When it comes to your credit score ranking, you probably have heard that it is better to have a high credit score. This will help you when it comes to financial situations such as getting a loan or applying for a credit card. However, people are often careless with their credit history and make mistakes that can later account for rejected credit card applications, difficulty in obtaining a low-interest loan, and so on. In this article, we will outline some common errors that you should avoid in order to have a good credit score.
Your credit score is also commonly known as your FICO score. The acronym comes from the name of Fair Isaac Corporation, the company that developed this scoring technique. Your FICO score is obtained by placing a value on the types of accounts that you have and your credit history. The score is a value between 300 and 850 most people in the US scoring around 600. Higher FICO scores mean that you are more credit worthy and you will have an easier time obtaining a loan or a credit line.
3 Things You Need To Know About Your Credit Score
Among the most frequent errors people make is paying their bills late, or, even worse, to completely miss a payment. It may due to bad time management or procrastination. These delays do not remain unnoticed as every payment you miss is recorded as part of your credit history. Even late payments are noted and your credit report will show how long those payments were overdue. If you've been late only once or twice, and the payments were not too long overdue, it will probably not affect your loan applications. However, if you are missing payments on a consistent basis, you will diminish your chances of being granted a loan or you may be offered a loan with a much higher interest rate.
Some people assume that it's better to close credit card accounts that you don't use. Although it may seem to be common sense, it might actually have negative effects on your credit score. If you've had an excellent record with the credit card company and you close the account, there will be no record of that good credit record that you've built. Moreover, an unused credit card means unused credit. Your credit score could benefit a lot from that. It is therefore much better to use your account occasionally – and make sure you pay it off on time and in full.
Another common mistake is to shop around too much when you are applying for a mortgage or a loan. You should not apply for credit unless it is absolutely necessary, because each application will generate an inquiry about your credit history. These inquiries, no matter what their purpose and results are, will reflect poorly on your credit history. As a result, when you really need a loan, potential lenders will tend to be cautious and reluctant to give you the loan at a low interest. There is no clear rule as to how many inquiries you can have without risking a bad credit score, so just try to avoid applying for unnecessary credit. Resist the temptation of applying for department store credit cards each time you're offered a discount for doing so.
Following this advice can help you build a better credit score ranking. In the long run, this will help you maintain a financial profile that will be attractive to lenders and you will qualify for lower interest rate loans and credit cards with better terms.
About the author:
James Porter has a passion for writing about personal finance topics. You can download a free copy of
"101 Powerful Tips For Legally Improving Your Credit Score" at his website about
improving your credit score.
