Do you really understand your credit rating? Do you understand how your credit rating could affect your life in major ways? In this article we are going to discuss the basics about what a credit rating is, why having such a powerful rating is important, and how to avoid making mistakes that will harm your rating in the future. After reading this article you should have a better understanding of why it is so important to be aware of your credit history and what steps you need to take to protect your rating.
One of the primary reasons to maintain a high credit rating is to avoid using credit cards to purchase items you don’t need and are not able to pay cash for. One of the easiest ways to build up a large debt that will eventually negatively affect your score involves using credit cards to make purchases that are larger than you actually have available cash in hand. You should avoid using your card to make large purchases if at all possible because when you use credit cards to pay for something you are in effect putting yourself into a financial debt trap. One way to avoid this trap is to only use your card to make purchases of something that you can pay cash for and that won’t leave you in debt for several months to come. This means that instead of buying a new video game system or an electronics item that will only last for a few weeks, you should be using your credit card to pay for it.
Another reason to keep your score in a healthy range is to avoid having any one of your different types of accounts go to collections. You should mix up your payment methods to ensure that you are not incurring late payments and over the limit fees when you are paying off small debts. You should also get approved for a variety of different types of accounts if possible. Many lenders are willing to approve you for a car loan if you have an automobile, home mortgage, student loan or other type of account. You can use any of these accounts to consolidate your debts and therefore lower your overall score.
One reason that it is very important to maintain a good credit rating is that if you don’t, you can be charged higher interest rates because of the damage that late payments or a lack of payment history will do to your score. Having a long payment history can boost your FICO score, but it takes some time. You may not get approved for a new mortgage for several years until your payment history is showing a steady decline in the number of late payments and you have a long history of being on time with your payments.
Finally, you need to maintain your current credit mix because lenders will look at your current accounts as part of your overall credit mix. Having high balances in high-interest store cards is not going to help you when you are trying to get a loan. If you have a low balance in these accounts, however, lenders may offer you a higher rate. Lenders use your current debt and credit mix to determine whether or not you are too much of a risk. The higher the risk you appear to them, the higher your rate will be.
It’s also important to remember that different credit scores are used by different lenders. Some use credit reports and credit scores, while others depend more on your payment history. Lenders make it easier for you to access their programs online. If you access a free copy of your credit report, you can quickly see your current credit scores. This gives you the tools that you need to quickly improve your scores so that you’ll be able to qualify for better interest rates on your future loans. Keep this in mind when you are comparing interest rates from lenders.