A credit score is one of the most important aspects of your finances.
It is not only an indicator with how you manage your credit, but it is
also a barometer of how creditors and lenders judge your
responsibility of your finances. The higher your credit score, the
better state your credit is in. It is important to understand the
significance of your credit score, but is equally imperative to know
what affects your credit.
There are a few things that can improve your credit such as making
credit card payments on time, maintaining a low credit utilization ratio
and keeping your balance down. Along with these positive factors, there
are also several that will drop your score down a few points. Whether
you are an experienced credit card user or have just been issued your
first card, you should be aware these financial components will have
adverse effects on your credit:
Credit card statement and payments
Each month you will receive a credit card statement. On this statement you will see a few different things including:
Account summary: This section includes your account number, balance and the credit limit you have available.
Transactions: This area will showcase all of your charges you have
put on your credit card during a specific period of time. Generally a
credit card statement will be for a month long period, but each provider
is different with the timeframe of their credit card statements.
Payment summary: This section may be the most important as it will
include the minimum payment that is due on your card and its due date.
Making payments on your card is important because they account for 35
percent of your credit score. If you fail to make the payment on the
due date, you will be assessed a late fee, interest charges and your
credit score will be knocked down a few points. Also, if you miss a
payment, this delinquency could be on your credit report for seven
years. By making payments on time you will be able to decrease your
balance and maintain a good level of credit.
As you start to use credit more often, you will begin to use up balance.
It is important to use a credit card as making purchases will help you
build credit, but remaining conservative with these charges will be your
best bet as debt accounts for 30 percent of your credit score.
Overspending will not only cause you to use up a good portion of your
balance, but it will make it difficult to pay that balance back.
Along with using up your balance, overspending can cause you to
increase your credit utilization ratio. This is the percentage of how
much of your balance you are using compared to your limit. For example,
if you have used $1,000 of your cards $5,000 limit, your credit
utilization ratio would be 20 percent. This ratio is here to show you
how much of your balance you are using and will give lenders an idea of
how responsible you are with spending. It is a good idea to keep this
ratio under 30 percent.
Being a responsible credit user
Overspending can cause your balance to skyrocket, but it is still
important to use your credit. You may think that not using your card and
letting it sit in a drawer will help you curb overspending, but it can
actually affect your credit in adverse ways.
Carrying a balance is good as it shows you have been using credit,
but it is how you deal with that balance that lenders will be interested
in. If a lender sees you are continually using your credit card,
reasonably, and paying off your balance responsibly, they will see that
you are a good credit user.
Along with your credit score, a credit report is another indicator of
how you are as a credit card user. This document will show you your
credit history and any negative marks and delinquencies you may have
gotten over the years. You are allowed a free one each year, but use
them sparingly as there will be a cost in getting additional reports.As you become a seasoned credit card user, you may have to open new
lines of credit. This can be because you have a family and need
financial assistance or you need it for business purposes. Before you go
this route, think through your options. By applying for a new line of
credit, a lender will have to access your credit report, which may
actually hurt your credit score. Credit bureau TransUnion said this hard inquiry
can stay on your credit report for up to two years. Consider your
options when looking to open a new line of credit because doing so could
actually hurt you.
Author:Tiffany Obar Phone: 817-739-8887 Dated: February 1st 2014 Views: 1,301 About Tiffany: About Halo
We understand that for many people, buying or selling a home is probably the largest i...
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