Credit scoring involves complex calculations, and the more you know about how credit reports and credit scores work, the more you can take control of your own credit.
In addition to knowing the most important factors considered in credit scoring, it can be helpful to know a few other facts about credit reports and credit scores. These components tend to be the most important:
One:
Negative information on your credit report can lower your credit scores. That information remains on your credit report for a set period of time. For example, late payments appear for seven years from the date you first missed a payment. Paying off a collection account won’t immediately remove it from your credit report.
Bankruptcies can remain on your report for seven to ten years, depending on the type of bankruptcy. The good news is, all negative information will eventually cycle off your credit report. Until it does, focus on the things you can positively influence, including paying all your bills on time.
Two:
You don’t need to carry a monthly credit card balance to build your credit history. You can pay off your credit card bills every month and positively affect your credit standing.
Three:
Settling accounts for less than the full amount you owe can harm your credit scores. Any time you fail to repay a debt as you originally agreed, it can negatively affect your credit. That said, the negative impact of settlement is still less than the negative effect of not paying debt at all or declaring bankruptcy.
A good credit score can open doors for you. From helping you qualify for the best interest rates and terms when you borrow money to influencing how much you pay for life insurance, some might be doors you never even dreamed existed.
Landlords will consider your credit scores when you apply to rent, and even telecom companies might look at your scores before you lease your next smartphone.
Considering how important credit scores are to your overall financial well-being, it’s wise to do everything you can to ensure yours are as good as possible.
Regularly checking your credit report and credit scores are the critical first step. When you check your credit score, you’ll see a list of specific factors affecting it. Focusing on those factors first is the best way to start improving your credit scores.