1-2-3 Finance

5 Things You Need To Know About Credit Scores

We hear about credit scores all the time. But most people don’t understand where these scores come from and what types of things influence your score. We all know that a higher credit score means better interest rates for car loans, mortgages, and other types of credit. Here are the 5 things you need to know about credit scores.

Follow the advice in these five credit tips and it will translate into higher credit scores and maybe even a few extra dollars in your wallet each month.

1) Approximately 35% of your credit score is based on your credit history, however late payments are rarely reported to the credit bureau until its 30 days late. For this reason if you are going to be late on a payment, do not let it slip past 30 days late.

2) Canceling credit cards may actually damage your credit score, particularly if they are old and established part of your credit history. Even if you no longer use a card that is ten or twenty years old keep it open because 15% of your score is based on the length of your history. In addition, keeping accounts open gives you a better debt to credit ratio, which makes up 30% of your credit score.

3) Everyone will need credit sooner or later, remember that no credit means bad credit in the eyes of lenders. When making a major purchase like buying a vehicle or your first house most people will have to rely on credit. You need to develop your credit to be granted credit, so make the effort to open at least one account and make purchases with a credit card occasionally.

4) Applying for too much credit at one time is extremely detrimental to your credit score since every time someone inquires about your current credit status the inquire remains on your credit report for 2 years. When you suddenly start applying for a large amount of credit, it sends up a red flag that you may be encountering some financial trouble that you weren’t prepared for or that you are accumulating too much debt.

5) Although teenagers are not always the most responsible with their finances, getting your child a credit card early in life can make a significant difference in the long run. If it is handled correctly this is one of the best ways to start building a solid credit history. There are many excellent options for low limit and prepaid cards, which will both help you child start building a positive foundation for their future credit.

Tags: credit card information, managing credit, using credit wisely