If you want to lower your debt and get the best interest rates, it is important to understand your credit score. Credit scores are influenced by many factors. If you have a single credit card, your score will be lower than someone who has several lines of credit. It is possible, however, to repair your credit rating.
Debt
You need to be able to assess your credit score in order to improve your financial situation. When you apply for a loan, or credit card, a lender will be looking at your credit score first. It can also impact the interest rates that you pay on credit cards or insurance premiums. Additionally, a low credit score can affect your employment. You may not be eligible for certain jobs that require money handling or dealing with public money supply if you have a low credit score.
History of payments
Credit scores are based on many factors, including payment history. It makes up 35% of your credit score. This reflects the extent to which you have paid back your debts. The longer a debt goes unpaid, the worse it is for your credit score. Being punctual with your payments will help build a positive payment record and improve credit scores. Other factors such as credit utilization and credit amount can impact credit scores, but the payment history is the most important.
Negative credit information will remain on your credit file for seven to 10 years. Late payments can be a major problem. They can lead to late fees and interest rate rises, as well as cancellation or suspension from your credit card.
Credit history length
Credit history length is one of five factors that can affect credit scores. It ranks in the middle, just behind credit utilization or payment history. A longer credit history will improve your credit score. If you have a track record of responsible debt repayment, lenders are more likely be to grant you a loan.
Length of credit history is derived by averaging the age of your open accounts. This can be calculated easily. Let's say, for instance, you have three credit cards that are ages two, three and four years respectively. This would indicate that your average age is now three years.
Delinquencies
A significant drop in credit score can result from delinquencies. Each delinquency is unique and lenders react differently to each. Late fees and reporting to the major credit bureaus may be charged. It is possible to pay your bills on time and fix any delinquencies. This can be done by looking at your billing statement, or calling your creditor directly.
While paying off a collection debt can improve your credit score in the short-term, you will still have negative marks for a long period. Because a delinquent period can affect your credit score, it is crucial to make your payments on schedule. This short delinquency can be overcome by creating a strong track record of on time payments.