When a financial need arises, you might be tempted to take out a loan or apply for a new credit card rather than part with your savings or money in the bank. After all, you work hard, you have a savings account, you own a home, you pay your bills on time, it’s better to use someone else’s money. This scenario and many ones that are similar happen to financially responsible people each day. Unfortunately, your credit score doesn’t recognize your achievements, only your debt to income ratio. Whether you are capable of paying your bills or not, having too much outstanding credit or access to credit will affect you. It will impact your FICA score and bring you into a lower credit score range than where you should be.
When it comes to your credit score there is good and bad debt. For instance, owning a home is good debt. So long as you make your payments on time, your score will not suffer but rather gradually improve. Having 2-3 credit cards is also a good thing if you use them properly. A credit card should be a source you use instead of handling cash on a vacation or shopping, etc. You should not mistake it as a way to spend money, but instead as a way to keep your money safe. When the bill comes in you should pay it in full. If there comes a time when you have to purchase a large ticket item and are unable to make the full payment, you should make it a priority to pay off the balance sooner than later.
Lenders view three main credit reporting agencies as credible sources: Experian, Equifax and Transunion. A credit rating can range anywhere from 300 to 900. The closer you get to 900 the more likely you are to get the best rates for a mortgage, personal loan, car loan and credit cards. Your credit report reveals any open credit lines and defaults in payments. Unfortunately, even one mark against you can take months to recover from. You should also know that any inquiries, such as applying for credit, affect your score as well. Making smart decisions goes a long way to helping you achieve a high credit rating. For instance, if you are considering applying for a loan for home improvements, do research on the lenders and their rates first instead of applying to three different companies.
Keeping track of your credit rating is always a good idea. Most of the reputable reporting agencies allow you to acquire your report once a year for free. This takes away any surprises when you decide to apply for credit. It also keeps you informed. Should you find any discrepancies you can address them immediately before they influence your chances for a loan.
Remember that having credit is good only if used properly. Having too many forms of credit available may send the wrong message to a possible lender. If you have more than 2-3 credit cards, close a few out. If you have an open line of credit such as an equity loan and you have no balance, close it. You can always re-apply in the future should the need arise.