If you are looking to manage and maintain your financial health, your credit score does play a key role in it.
But, just knowing the score will not be of great help, you should also have a holistic understanding of how the credit score gets calculated and all those factors used for the calculation.
If you don’t have the right information of how credit scores read & interpret your credit card data, you don’t have any other way of knowing whether your financial habits are benefiting or hurting your credit score.
Here are 7 factors that affect your credit score.
When You Miss Or Not Paying Your Debt
In the event, you are paying late or missing a payment on a debt, this gets added in your credit report, eventually, it leads to a negative effect on your credit score. Well, if you are missing several payments, chances are that your lender will straightaway put your account into default.
With some lenders, you are allowed to miss a maximum of six payments, but some lenders won’t allow you to miss more than 2 payments before declaring you ‘default’.
If you are defaulting on a payment, you have to pay a heavy penalty on your credit score as compared to missing a payment. Both missing and default payment gets marked on your credit report and the worst part is that it stays on your report for six long years. Make sure you have made your best efforts to pay back your debt.
Errors On Your Report
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Usually, mistakes can and do happen, these mistakes can have a negative effect on your credit report. These errors commonly include mentioning incorrect addresses, names, and even your debt levels, account status, and whether you are on the electoral roll can also have errors as well.
In the event your name or address contains errors or if you are using different names/addresses for different accounts, then some of your accounts probably won’t show on your credit report.
Take a closer look at the accounts section of your credit report in order to ensure whether all your accounts there and there is nothing you are unaware of.
Applying For A Credit
Whenever you make an application for credit, a credit application search is done on your credit report and it is reflected in your file. If you are thinking of making an occasional application for credit, then it won’t do any good to your credit score. But, if you are frequently making multiple applications or you have been rejected for credit, then all this can have a negative effect on your credit score.
If you want to reduce the number of application searches on your report, then make sure you have checked your eligibility for a credit product with the help of quotation searches before applying. This can prove beneficial for your credit score as only you will be able to notice the quotation searches.
Helpful Tip – When you have applied for a new credit card and if your credit score comes down dramatically, make sure you don’t worry. You just need to ensure you are using the new product responsibly, this will help in quickly taking your credit score back up.
Transferring All Your Debt To One Single Card
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When you have multiple credit cards, it is an arduous job to keep up with the payments. Therefore, most of the people choose to transfer all their debt to one single card.
Some credit cards also offer attractive benefits for doing this with a 0% interest and no balance transfers introductory offers.
Remember, this will have a negative effect on your credit score as it will come down whenever a single card carries a high balance.
Not Having Any Active Credit History Or Credit Agreements
In case you are not having active credit accounts, this can have a negative effect on your credit score. The reason for this is that the lenders will not have current information about whether you are able to pay off the borrowed money and they may deem you as a major credit risk.
In the absence of credit history, getting approved can be a tiring process for you. But, on a positive note, some credit cards (credit builder cards) will lend a helping hand while you are dealing with this situation. If you use these cards, there is only condition i.e. you have to use them sensibly to build up your credit score.
Having Permanent Address And Stable Electoral Roll
If the bank or the lender is lending you then they want to ensure you are reliable and stable and you can be trusted to repay the debts. It is important you are living at your address for a significant period of time and you are on the electoral roll, these are the two things your lender and the bank will consider determining your stability.
In case, you are living in one place for a considerable time, this will be better for your credit score than if you are constantly changing your addresses.
In addition, when you are on the electoral roll, your bank and lender trust you and also that you are settled at the given address, hence confirming your stability.
Age Of Your Accounts
Pretty much like your address, your bank and lender will show a keen interest in seeing stability as far as the age of your credit accounts are concerned.
They are interested in seeing at least one of your credit accounts you have for several years, let us assume for ten years, even if there is not much activity.
Just like your address, this will not only assist in confirming who you are, but this will also show you are trusted by other lenders and banks for a long period of time.
If you are having an older account, chances are that it will have a positive impact on your credit score. If all your credit accounts are new, then, unfortunately, this will bring down your credit score.