When you don’t know a lot about your finances and the idea of balancing a checkbook literally frightens you because of the math involved, then getting a report from the major credit bureaus that talks about your credit history is probably something you’ve never considered. If you are someone who just spends the money in their bank account until it is gone and then just waits until it comes back again to repeat the process, you need to know about the power of the credit report and what your credit score can do for you financially … both positively and negatively.
Your Credit Report Contains All the Information Lenders Need To Know About You
When you forgot to pay your credit card bill around this time last year, you probably never gave it a second thought, right? You just paid both payments the next month and made it right. On your credit report, however, the fact that you let your unsecured line of credit go out past 30 days will be noted on the month that it happened. The truth of the matter is that your credit report contains every piece of information related to your payment histories on your lines of credit, from accounts you let go to a collection agency to defaults you might have had to the good stuff where a payment is marked when it has been made on time. Even though you may not be paying that much attention to your finances, your lenders are and they are reporting this information to the credit bureaus.
Why Is This Information Important?
Why is the information that is on your credit report important? Because it is an indicator of who you are from a financial standpoint. Lenders and investors like to have at least some guarantee that they will be able to earn their money back, including a premium on top so that there is positive cash flow coming in. Your credit score, which is made up from your entire credit history, from stuff you’ve applied for to your payments you’ve made to the length of time you’ve had lines of credit, in a clear indicator as to what you might do with the line of credit for which you have applied. If your credit score is low, then that tells the lender that not only is there a risk that you won’t pay off the loan, but that you might have to make the lender spend more to try to recoup what they can when you do stop paying. In comparison, a high credit score will help you to be able to get the right terms and conditions that will help you be able to afford your new purchase while giving the lender the confidence that you’ll return their investment in you with some profit on the side.
What Can I Do To Improve a Bad Credit Score?
If you have pulled your credit score and discovered that it is below 650, then you have some important work to start doing. That’s because your credit score is considered in the fair to poor range instead of the good to excellent range. To raise a credit score quickly, you’ve got to be able to:
- Pay your bills on time and consistently over a period of time, at least a year, to experience the most benefits possible.
- Stop applying for new lines of credit, because every new line of credit that you apply for, even if denied, will lower your credit score.
- Pay more than the minimum payments on your accounts, because how you pay off your bills also reflects on your credit score.
- Keep your credit lines open, because the length of time you keep the lines open will help to boost your score as well.
Some things take more time than others, so just be aware that raising your credit score isn’t going to happen overnight. If you know that you’ll be wanting to purchase a new home in the next year or two, start doing your best to improve that credit score today to maximize the benefit.
What Do I Need To Avoid For a Bad Credit Score?
Everyone misses a payment now and then, either because of forgetfulness or just the fact that there wasn’t enough money to pay everyone that month. A missed payment here or there isn’t going to reflect that badly on you. If you let accounts drift into a collection status because you have continually been unable to make the payments you need to make, then that can have an adverse affect on your score. In addition, you’ll want to avoid:
- Short Sales
- Deed in Lieu of Foreclosure Agreements
- Defaults on a Line of Credit
Those are the items that have the most adverse effects to your credit. Avoid them and you’ll always have a pretty fair credit score, no matter how much, or how little attention you pay to your checkbook… or the credit reports from the credit bureaus.