Your credit score is the indication of your credit worthiness. It is also known as the Beacon Score or FICO score. Every financial institution will enquire about your credit score before they would give you credit. Your credit report would present your financial actions over the past 36 months, except for bankruptcy, which remains on the report for 7 years.
Negative Impact of Financial Actions on Credit
Very few people understand the impact of their financial actions on their credit.
The following factors would have a negative impact on your credit score:
- Late payments, even 1 or 2 weeks old, within the last 36 months.
- Having too many credit cards. This indicates that either you are living beyond your means or do not have any control over your day-to-day finances.
- Too many credit cards with balances near their limit.
- Too many new cards within the last 12 months. Every new card that you apply for, would initiate a credit enquiry, too many of which would adversely affect your credit score.
Credit score is important because it dictates whether you can get a loan and further how much interest you will pay on it.
Here are some tips to improve and maintain your credit:
- Order your credit report from MyFico.com, Equifax, Experian and Trans Union online or over the phone.
- Check your credit report for any inaccuracy in name, social security number, birth date, or address. Make sure that it does not include any incorrect information like paid-off debts, wrong delinquencies, charge offs, lawsuits, bankruptcies older than 7 years, duplicate collections, paid liens listed as unpaid, or any other incorrect negative information.
- Pay your bills on time.
- Maintain low balances. The Beacon Score looks at how much of your combined credit limit you have used. If you pay off the balance within 60 days, you can increase your credit score by as much as 20 points.
- Do not have too many department store credit cards or new credit cards. New credit cards reduce the age of your credit history. If you have one credit card that is more than 2 years old, you can improve your score by 15 percent.
- Do not close credit cards with unpaid balances because it will decrease your credit score.
If you maintain strict financial discipline, you can improve your credit. So, put in some efforts to maintain and protect a good credit. It is not all that difficult if you try.