Having a healthy credit score is close to being a necessary consumer asset today. If you don’t have a healthy credit score that fact can affect your ability to get a mortgage, rent an apartment and even get a job. Lending institutions, employers and landlords are just some of the people and organizations that can request access to your credit score and will use that information in making their decisions about you.
Essentially, your credit score gives an indication of your ability to generate income and manage bills. Equifax, TransUnion and Experian are the three reporting agencies in the U.S. which provide scores about consumers. These scores are averaged to provide every person with a single credit score.
When something like a loan or a delinquent payment is put on your credit history it goes to all three reporting agencies. One of the key factors that go into creating your credit score is your income. The higher your income, the more you can credit without it negatively affecting your credit score.
When most people think about factors affecting their credit score, they think about their credit history. You’ve likely heard that it is important to have a credit card in order to develop a credit history. This is true. In fact, the older your credit card is, the better. Even if you choose not to use credit cards, it’s important to keep at least one functioning card. Maintain a zero balance and use the card every so often. This will enhance your credit rating/score.
You will, however, lower your credit score if you have too many credit cards. Keep in mind that your credit card limits represent the total amount of revolving credit available to you. The more available credit that you have, the less credit you will be able to qualify for.
It is recommended that consumers keep no more than two credit cards. Remember that this includes grocery store cards, traditional credit cards like VISA or MasterCard and department store credit cards.
How timely you pay off your bills is another key indicator that will affect your credit score. If you pay your bills on time you will be considered a low-risk borrower. If you have too many late payments, you will be considered a high-risk borrower and this will lower your credit score.
A lower credit score will present you in a negative light to potential borrowers like those you might be approaching to purchase a home, and even to potential employers. Some employers, depending on the nature of their business, will check your credit score once you’ve submitted a signed application allowing them to check references.
Applying for too much credit will also impact your credit score. Obviously you will have to apply for credit from time to time. Try to arrange all your applications to happen within one month. Even if you have multiple applications, if you do them all within one month you will only get one negative rating. Reporting agencies expect you to be applying for credit and will give only one negative rating for this kind of activity within a 30 day period.