Your credit, Your life: How to make it better

Your Credit, Your Life

(KSLA) - One of the most important factors to know about your credit score is that it follows you around for the rest of your life.

No matter whether your score is high or low, it’ll play a major role when applying for:

  • Credit cards
  • A new or used car
  • Your first home 
  • Keys to a new apartment 
  • Car insurance
  • Cell phone service

But your credit score goes far beyond those things. Lenders and other financial institutions use your credit score as an indication of your reliability. Your score will either save or cost you money.

According to Tiffaney Williams, a credit counseling expert, “checking your credit only affects your score if it’s a hard inquiry. A hard inquiry would be applying for a credit card, a home loan, a personal loan, anything like that, that is considered hard inquires.”

What is the definition of credit score:

Your credit score is a three-digit number that sums up the information in your credit report. Credit scores were designed to predict the likelihood that you can meet your payment obligations or that you will go delinquent on your payments.

“When you have a collection account or negative account, on your credit report, there’s two options, either you pay it or you don’t pay it. Once it hits collections, it has already impacted your credit, Even if you pay it off, it’s just going to be a paid I-9 collection account. If you dispute the inaccuracies or erroneous items on the report, it’s a possibility that it will come off and won’t impact your credit report, " said Williams.

There is a common misconception that each person is assigned only one credit score and that all credit bureaus have the same score, but that’s definitely not the case. Most of us have multiple credit scores that are slightly different because there are multiple credit bureaus.

Credit scores can range from 300 points to 850 points. The higher your score, the better.

Let’s say you’ve decided you want to live credit-card-free, never plan on getting a loan or you’ve decided you want to pay everything off in cash, neglecting your credit score isn’t something you want to do.

Did you know:

  • There are a number of employers who now check your credit check as part of their process for screening job candidates. 
  • Your score can also influence where you live.  Surprisingly, landlords will include a credit check as part of their application process. 
Your credit score is a three-digit number that sums up the information in your credit report.
Your credit score is a three-digit number that sums up the information in your credit report.

Top Factors that Impact Your Credit Score

  • Payment History: Your payment history is generally the most important factor in calculating your credit score because it shows lenders whether you’ve been reliable in making consistent on-time payments. 
  • Age of Credit: Establishing a long credit history usually improves your credit score as long as you have a history of consistent on-time payments on your open accounts. 
  • Credit Card Utilization: It’s also known as debt-to-limit ratio which measures the amount of your overall credit card limit that you are using. A good rule of thumb is to keep your credit utilization ratio below 30%, the lower the better.  
  • Credit Mix and Number of Accounts in Use:  It’s the number of accounts you’re actively using including, auto and student loans, mortgages and other lines of credit. They all play a factor in your credit score. 
  • Hard Credit Inquiries and New Credit: Every time someone pulls your credit report whether it’s a lender or landlord. That inquiry is noted on your credit report. Keep in mind that there are two types of credit inquiries, hard and soft inquiries,  only hard inquiries are visible to others on your credit report and impact your credit score. One hard inquiry is unlikely to affect your score by more than a few points, but keep in mind, hard inquiries can stay on your credit report for two years.
Your credit score impacts many areas of your life. Neglecting it will result in negative results for years down the line.
Your credit score impacts many areas of your life. Neglecting it will result in negative results for years down the line.

If you’ve made some slip ups it’s not too late to take action and rebuild your credit score.

Start by getting a copy of your credit report and reviewing it closely. You’re entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies.

If you have a low credit score, it’s likely you’ve made one of the common credit mistakes, such as, late payments or too many inquiries. Here’s how you can fix it:

  • Late Payments: start making payments ASAP. Your payment history makes up about 35% of your credit score. Late payments will usually be removed from your credit report after seven years.
  • Too many hard inquiries: hard inquiries stay on your credit report for 2 years. Be patient and do not apply for more credit unless you really need it and know you can make on-time payments.
  • Foreclosure and repossession: A repossession or foreclosure will stay on your credit report for seven years. Focus on adding positive items to your credit report by making on-time payments.

Improving your credit score takes time, but experts said it’s worth the effort.

Copyright 2019 KSLA. All rights reserved.