Bank finance articles and tips

Credit and credit scores are very important and can determine whether or not you get that big-ticket item that you wanted. A person's credit can show how reliable they are to make payments and what their debt ratio is. Credit is involved anytime someone wants to get a loan, buy a house, buy a car, or anything that can be pricey and normally takes time to be paid off. Some people who have worries about their credit score, or who simply don't care about their credit, make three mistakes when dealing with their credit cards and debt, but there are ways to avoid that.

The number one mistake that most people make is closing the credit card accounts. You might wonder why is this bad. If you close your credit cards, then it makes that account inactive, so it no longer has any influence on your credit report. Once you close your credit card account, the clock starts ticking down, and after 7 years, the inactive account will no longer show up on your credit report, that means that all of the good things about that account, like making payments on time, will no longer be visible and no longer matter. This would be like doing extremely well in high school, having perfect attendance, getting straight A's, and being involved in extracurricular activities, then poof, those records have vanished after time. Instead of just closing your card so that it eventually drops off your report, use the card every now and then for small purchases, like a cup of coffee, socks, or a belt. This way you can keep making payments on time, and will have a record of your perfect payments, earning you a higher credit score.

The second mistake is a big one and actually pretty obvious, be sure not to have any late payments. Everyone knows that if you don't make your payments on time, it's an automatic strike against you. Your credit score will look at how often you miss payments, what the amount is, how late it was, and what your recent late payment was. Your score is used to predict how you will pay your bills in the next 2 years, so they look at your past payments from the last 2 years to see what/if there is a history of late payments. If you have had late payments within those 2 years, it shows that you are more likely to miss another payment than someone who has made their payments on time. Of course, for those who are late by only a week are two are going to have a higher credit score than someone who is several months late on their payments.

Another big mistake is not having credit or a credit score. This may sound like a good idea at first if you worry about being in debt, but it can actually hurt you. Without a credit score can make it difficult to get credit from a lender, because majority of lenders use automated systems and application processes, and without a credit score or history, this can be a long and difficult process. Being able to take control of your finances and credit shows that you are responsible and may be eligible for more rewards, such as having a lower interest rate, or more possibilities to get inexpensive loans. Most lenders like for you to have at least 3 lines of credit that are open for at least a year. A direct line of credit can be a credit card, monthly rent payments, or car payments. If you don't have direct lines of credit, there is a chance that they may consider indirect credit lines like a monthly gym payment or a cell phone bill.

Having a credit history, and a decent credit score is a necessity with the way our society and economy is run. Your credit score tells lenders that you are a reliable client, an asset, and if they do give you a home loan or a car loan, they will get their money back. If you haven't checked your credit score in the past year, you can get your free credit check and are allowed to a free credit score from all three credit companies, Equifax, Experian, and Transunion. Know what your credit score is several months in advance before applying for a loan so then you can correct any mistakes on your report.

Lisa Andrews
Learn More About Credit Scores

By Lisa Marie Andrews
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