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Whether you are trying to reach your financial goals, financial debt, or simply get credit, there are certain things regarding credit that you need to know. As you know, how you understand and approach credit can affect your financial situation now and in the future. Lucky for you, I have three important things you need to learn about credit to help you make the most of it and develop better financial habits henceforth.
Having a good credit score can make your life easier and help you save. We both know that interest rate is one of the costs you have to bear when borrowing money, and it’s usually tied to your credit score. Having a good credit score can help you qualify for the best interest rates. It also helps you pay lower charges on your credit card balances. This is important because you’d be more likely to save and pay off the debt if you’re paying less money in interest.
Secondly, having good credit gives you a better chance to get a new credit card, and get your loan approved. There are lenders who consider factors like debt and income before approving loans to their customers. For instance, although a lender like SOCALVAHOMES doesn’t consider a predetermined credit score as one of its VA loan credit requirements to determine loan eligibility, having a good credit history is a good sign that you’re the perfect candidate for loan approval.
Thirdly, having a good credit score can offer you leverage to negotiate lower interest rates on new loans. Lenders are always willing to listen to negotiate with borrowers with good credit scores.
Credit cards are often the biggest cause of low credit scores. According to Experian, credit cards affect your credit scores in more ways than one; this includes the card application, payment history, and usage habits. Therefore, if you have a low credit score, there’s a chance you put a lot on your credit card that you cannot pay off each month.
The number of credit cards you have can also affect your credit score. For instance, if your credit card with $900 credit available, and you’re using $700 of the credit, your score may be lower than that of someone else with two credit cards with a $900 credit, and they’re using $350 on each one of them.
Generally, having two credit cards instead of one can help you use a third or less of your available credit because you’re essentially distributing your spending between the two. Just remember that you shouldn’t use more than one credit card if you’re bad with credit cards.
Debt and credit damage always go hand in hand. If your credit score has taken too many hits, however, you can rebuild your credit and bounce back. Some of the biggest things that damage credit scores are mistakes and errors. Luckily, you can review your reports as often as possible and dispute any errors you come across; when you confirm that your reports are completely error-free, you can begin rebuilding your score.
To do that, start by developing a habit of paying your bills on time. If you want, you can set up automatic payments to make sure you’re never late. Secondly, pay off your credit card debt, keep your credit card balances as low as possible and be cautious when closing your accounts. Each time you close an account, you essentially reduce the amount of available credit you have, impacting your credit utilization ratio. Credit utilization ratio refers to the total credit balance you have based on your credit card limit compared to your credit balance.
You can also open a secured account to build a good credit history. A good way to do so is by getting a secured credit card. Such an account enables you to deposit your money into an account as collateral, and then borrow a certain proportion of that amount for credit.
There’s so much to learn about credit; hopefully, this article has cast some light on the fundamentals. Whatever you do, remember that credit score is beneficial, credit cards impact your credit scores and that you can always rebuild your credit score.