Your credit score is basically a number that summarizes your credit history. There is no “magic” score that appeases all lenders; they each have their own standards and requirements. The important thing is to keep your credit score as high as possible, because the better your credit is, the more financial options you have. Those with the best credit get the largest loans with the lowest interest rates, as well as more options for their places of residence, their vehicles, and even their employment opportunities.
When your credit score is low, it is because a creditor or collections agency has reported a delinquency on your account. For example, if you made late payments to a credit card, neglected to pay a medical bill, or foreclosed on a house, it will show up on your credit report, dramatically lower your credit score, and limit your options for future loans and financing.
Lenders look for a positive established credit history. Some of the things that can cause a lender to be hesitant to provide you with financing include past account delinquency, an account that has been turned over to collections, very recent delinquency, a large number of delinquent accounts, a high amount of debt owed, a proportion of balances to credit limits that is too high, and too many open accounts with balances.
You can take steps to increase your credit score by paying down account balances, increasing your credit limits (but not your balances), and asking creditors to remove accounts from your credit report once the debt has been paid off (some will). In addition, you should monitor your credit report to make sure that there are no incorrect entries on your report dragging your score down. A number of different components work together to make up your credit score – be proactive about monitoring them all for the best score possible.
Why You Should Be Monitoring Your Credit Score
Far too few people monitor their credit reports consistently, if at all. At a minimum, you should look over your report once a year. Checking your credit report periodically is free and is a simple step you can take to protect your financial well-being, since your credit score plays such an important role in almost all of the financial relationships in your life.
Taking a look at your credit report will help you make sure that the information on it is correct and help you identify ways to improve your score, such as bringing to your attention any delinquencies that need to be paid off, for example. Monitoring your credit report is a fundamental part of managing your personal finances. It’s just as important to review your credit report as it is to review your bank statement.
In addition, your credit report is often your first clue that you have been the victim of identity theft. If it contains social security numbers or names that aren’t yours, or accounts you didn’t open, you might have a case of identity fraud on your hands. Contact the credit reporting agency about items like this so that they can help you put a stop to the credit fraud and take steps to prevent it from happening again in the future.
Checking your credit report is also the first step in finding and correcting inaccurate information. A surprising number of credit reports contain errors. If you do find an error, contact the creditor to ask for a correction, as well as copies of the corrected credit report sent to any lenders who have seen the incorrect report recently.
Because your credit is such an important part of your life, affecting everything from your ability to get financing to your ability to get a job, you don’t want to take chances. Be proactive and protect your financial future by monitoring your credit report.