Understanding Credit Scores.

Credit scores are extremely important if you hope to apply for a loan. Your credit score tests your creditworthiness and most lenders will use the report from the credit reporting agencies to decide whether or not you are a good risk for a loan.

 Knowing your credit score is very important because it will help you make good financial decisions. It is important to know how the credit score agencies calculate your credit score and how you can make it back to good financial health.

 What can affect your credit scores?

 Many people struggle with their financial situations and most of the problems surrounding money include not knowing how to spend it. Your credit report contains information such as your name, date of birth, employment status, what lines of credit you have taken including car loans, credit cards, mortgage, payment history,  payments overdue, civil lawsuits and bankruptcies just to name a few.

 All the factors above have a big impact on your credit score. The only way you can start to improve your credit score is by knowing how your current credit standing. You can request for your credit report from the credit bureaus and you need to be keen about this, so that if there any discrepancies you can correct them in good time. Remember a stain on your credit score will stay up to 7 years, and if you do not know about it because you have been neglecting to check your credit score, you will not be able to get financing the day you need it.

 Credit score inquiry

If you or your employer checks your credit reports, this is a ‘soft pull’ inquiry and will usually not have an impact on your credit scores. When a lender requests your full report, this is a ‘hot pull’ and may have an impact on your credit score. They stay on your record for 2 years but will only impact on the score for one year.  Lenders require this information to assess whether or not you are creditworthy. The number of inquiries you have on your report makes up to 10% of your credit score so the more the inquiries the bigger the impact on your credit score. Multiple inquiries for one product constitute one inquiry and will therefore not have a great impact on your credit score.

Final thoughts

 By understanding what affects your credit score, you are able to take the necessary steps to correct them. While you may not think about it on a day to day basis, the poor credit score will have an impact on your life one day.  This may be the day you need to get money from a lender. Some jobs actually require that your credit score is good because it shows your integrity as an individual. Some rental property owners will also look into your credit history because it will tell them whether or not you will be able to pay the rent on time. So try as much as possible to have great discipline when it comes to your finances so that you do not affect your credit score.