The world of credit can be a mysterious one, to say the least. There is a lot of misinformation when it comes to credit and how to build it. Here are three things you need to know:
How Credit Scores Are Determined
(1) Your payment history makes up the most significant percentage of your credit score, so it is imperative that you make payments on time!
(2) Credit bureaus also look at the amount of money you owe compared to how much credit is available to you. The smaller the amount you owe, the better your credit score will be.
(3) The other, smaller portions pertain to the types of credit you have, like installment loans such as a car loan or mortgage, and revolving credit like credit card debt. (4) Any new credit you’ve applied for is also examined.
Your credit score can range anywhere from 300-850 and can affect many things, like the interest rate you can get on loans and mortgages, and it can even determine whether you are accepted to rent a place to live.
Credit Cards Aren’t Bad, but You Need to be Careful
I have heard many times that credit is bad and you should never use it. That simply isn’t true, but credit does need to be used wisely.
If misused, credit can get you into trouble. Instead, make sure you are paying off your entire credit card balance on time each month. If you only make the minimum payments, you will be charged interest and it will become a never-ending cycle of payments and even higher debt. Making the minimum payment will not make a dent in what you owe.
How to Check Your Credit Report
It is important to check your credit report a few times a year to make sure it is correct. There are three credit bureaus: Equifax, Experian, and TransUnion. Each one is required to give you one free report every year. The easiest way to request your report is at annualcreditreport.com. If your report is not correct, reach out to the credit bureau. Its representatives should help you with the process of correcting it.