The Blog Of TL Wall Accounting

The Importance Of A Good Credit Score

Everyone has heard the term credit score. Not everyone really understands its purpose or why they should try to have a good number. Most people only know they should have a good number; they just don’t know what it is.

Let’s get the immediate question out of the way. A good credit score is considered as any number over 720. There are a lot of things that are considered for a credit score, and since each agency seems to do it different, you could have a good credit score at one and not the other. That’s why it’s always good to get your free credit report annually via the federal government’s agreement at the site Annual Credit Report, which we’ve just linked to.

At best you can see what your balances are all in one place, see how the 3 major organizations see your credit, verify if there’s anything outstanding that you didn’t know about or that you might need to refute, and most importantly, see if there’s something on there that doesn’t belong to you. in this day of credit card numbers and social security numbers being hacked, it pays to know.

Even though it’s hard to discern all the factors, there are some key factors that are easily tracked, that you probably already know about to some degree.

First, late payments. Many creditors will report if you’re more than 30 days late with a payment. Not all of them will do this however; usually health care entities will wait at least 120 days before reporting you, which most people don’t know about.

If you’re late with a credit card payment, it’s getting reported. If you’re late with a car payment or mortgage payment but you call them, they’ll usually give you a break. Actually, if you know you have money coming for a credit card payment and you call them ahead of time, they’ll usually give you an extension of 7-10 days as long as you’re not a repeat offender.

Second, too many outstanding credit balances. Most of these concern credit card debt, so if you have a lot of credit cards with high balances that will bring your score down, even if you’ve never missed a payment. Mortgage balances aren’t always taken into account; the same goes for car payments.

Third, not having enough credit for a credit history. As strange as this one seems, if you’ve only had one credit card in your entire history and want to get a loan for anything, your credit score might not be all that high because you don’t have a proven history of paying a lot of bills. This one doesn’t make sense, but the next one makes even less sense.

Fourth, paying your balances off each month. This is something that a lot of financial advisors recommend that you do but it comes with a problem as it pertains to credit scores. If you immediately pay off your balances all the time, credit agencies feel they can’t predict how you’ll react if you suddenly have to carry a balance on something. So, they’ll penalize you by not giving you a great credit score; isn’t that petty?

With that said, the last one is still preferable if you can do it. If you need to get a loan for a house or car, those types of companies won’t hold your lack of borrowing against you. As a matter of fact, it’s possible that mortgage companies will be more willing to give you a better rate, especially if you can put down at least 10 – 20% of the downpayment on your home at the time of purchase.

These are the biggest factors that can affect your credit score. In any case, it’s always better to know where you stand, so be sure to get your free credit report.
 

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