Credit is everything in the finance world, and if you've ever tried to get a loan,you know that you need to keep that score as good as possible in order to have the best chance to qualify for the best deals. But do you know what affects your credit score? Unfortunately, you may have been damaging your credit rating without even realising it. There are numerous things that affect your credit score, in positive or negative ways. Your financial behavior matters, so let's talk about what affects your credit score and how you can make sure you are doing well by it.
Positive: While having debt is never good for your credit score, that doesn't mean you can't do something about it. If you take responsibility and an active role in repaying your previous debt, such as setting up a payment schedule or working something out with the lender and you start repaying, that will be reflected in your score. Positively! Step Change has good advice if you are struggling with debt.
Negative: On the flipside, debt that is just abandoned and forgotten about or ignored is not going to do you or your credit rating any favours. It's going to drag your score down further and further, especially if the debt ends up at a collections agency. Debt has a very negative impact on your credit, so do your best to keep it in check in order to make sure your rating is not being affected.
Paying Your Bills
Positive: Did you know that if you pay your bills responsibly, that can help your credit? Paying your bills on time, every time, demonstrates responsibility. It shows you can be trusted to pay things on time and that you won't be forgetful, flaky, or unreliable, and that you don't abandon payments. Maintain a good track record by setting up a direct debit so that your payments are made automatically when they are due.
Negative: Late payments will never make you look good. In fact, they can even damage your score. When you're always late on bills or skipping payments altogether, that says unflattering things about your character and your score will suffer. After all, if you can't even afford to pay your Internet bill, why would you be able to pay back a loan? Remember that you are judged based on every financial decision you make, including something as mundane as paying a bill.
Applying For Loans
Positive: As you will see, applying for loans indiscriminately is a one-way street to destroying your score, but you can circumvent that by operating in an intelligent way and making use of some tips. First of all, you should do some research and learn about the eligibility criteria. If you know you don't qualify, do not bother applying, because you will be rejected and that is going to affect you negatively.
The other thing you can do is to perform a soft search. That will enable you to check to see if you are likely to be accepted for a loan or not, thus sparing you the credit hit, in case of an unsuccessful application. Money Saving Expert has a tool to check eligibility for credit cards, but also one for loans, if you are interested.
Negative: When you have bad credit and you need to borrow money, you can become increasingly desperate as you get rejected and try to apply in as many places as possible in order to increase your chances of getting approved. But in fact, that only has the opposite effect: every single credit inquiry and rejection counts negatively against your rating, so it's best to avoid unnecessary applications. Remember that what affects your credit score negatively is a record of poor payment or rejection.
Repaying Your Loans
Positive: Did you know that getting a loan can actually be a very smart way to improve your credit score? What affects your credit positively can be surprising, but in this case, it makes sense. You see, as long as you make the payments diligently and on time, you are showing that you are financially responsible and capable of repaying a loan. That signals you as a reliable borrower and pulls your score up.
Negative: This relies on you maintaining a good payment track record, however; if you fail to pay on time, or you start skipping payments, you know what happens. The opposite effect is achieved and your score gets even worse as you go further into debt.
All in all, when it comes to what affects your credit score, there is a wide range of things you need to pay attention to. Remember that anything you do can help your rating or it can damage it, so be very careful how you manage your finances. If you need to check your credit, you can do so at Equifax.