What is a credit score?
A credit score is a numerical expression based on a level analysis of an individual’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on credit report information typically sourced from credit bureaus. Your credit score tells lenders if they should trust you with their money and give you loans.
Credit score impacts your life directly. Certain situations affect your credit score. This works pretty much like Karma. The more you spend, the more debt you incur (the lower your creditworthiness). The lesser you spend, the higher your creditworthiness.
What determines your credit score, then?
Missing due dates
By not paying equated monthly installments (EMIs) on time and by missing the due date of credit card bill, you are creating a negative impact on your credit history. One single payment, if missed, is enough as it will show up in the report. It shows the number of days for which the bill or EMI remained unpaid after the due date. Never miss due dates, pay off everything on time.
Drowning in debt
The larger the amount of money you owe, the worse your credit history is. If you have small amounts of debt or have some unused credit, you will be in a better position. Nevertheless, you could still buy many things from the existing credit and get into more debt. Hence, it is imperative to clear all that debt before using up more credit.
Credit History and its length
The longer you have held your credit card, the likelier it is that you are good at credit. However, you could have recently bought a credit card and still be good at credit while on the other hand, an individual with the long credit history might not have a good credit history. Hence, you have to keep good credit history along with maintaining good credit.
While missing due dates could worsen your credit score, late payments can also worsen your credit score. It reflects negatively on your credit score.
Not paying fines
You have violated a traffic rule or two. You haven’t returned one book to the library and last month you returned a book in a torn state you had borrowed from the library while it was new. Such things negatively impact your credit score.
Pushing your credit limit
Your “debt utilization ratio” consists of a huge percentage of your credit score. This is your ratio of used credit to available credit. Your score will be higher, the lower the ratio is. Keep this ratio low by using as less credit as possible.
Having an account charged off
If a creditor suspects that you will never pay your credit card bills at all, he/she will charge off your account. This means he/she has given up on you and your debt has been “written off”. This however doesn’t mean you are no longer responsible for the debt.
Not having a credit card at all!
All the above points may make a person without credit cards wonder if it’s worth taking a credit card or just drop the idea. But not having credit cards is not helping you in any way either. For building your credit, credit cards have to be used but in a responsible manner.
These eight points are essential for you to remember. Having no credit card doesn’t do any good as it is on the extreme end. For more information visit www.moneymindz.com or give a missed call to022 6211 6588
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