How Does Your Credit Rating Work?
How Does Your Credit Rating Work?
Your Credit Score is a Crucial Part of Your Financial Life Few other factors in life are more important to you than your credit score. Your credit score make up a complete financial snapshot which presents you to the world as a financially responsible person.
The importance of credit cards is not often mentioned but it is important to remember that they do add to your debt and ultimately to your credit rating. By getting a credit card you can build your credit rating. However, you must be cautious about the type of credit card you choose.
A credit card is a tool for financial stability. When you get credit, you are borrowing money. It is not just your account that is being financed but your whole financial picture. That means any interest rate and any charges to you, your accounts will be included. As your score goes up you are seen as a more financially responsible person and your credit score goes up along with it.
This way your first credit card is a valuable tool. Once you have had a good experience using your first card, and your scores go up, then you can build on that with more high quality credit cards.
Some people find themselves with bad credit. There are programs offered that help those with poor credit. These programs are usually private, and they are based on income. So, you may not qualify if you have a low income, but if you have a high income, you could get help.
If you use your first credit cards wisely and make all your payments on time, and you pay off your balance each month, then your score will go up. But remember that credit ratings are not static, so keep up to date with your credit score and make sure you keep your debt to income ratio in check.
If you have several credit cards, try to keep them all in good standing. You should always check with the credit card company, you have to ensure they are in good standing and that you are still able to make payments.
Most card companies will help you if you are struggling and may offer you a credit counseling program. If you find yourself in a bind, get the help you need. You are one of thousands of Americans just like you.
When you sign a credit card contract, it is important that you understand what is written in there. For example, in many credit cards it states that you are only allowed one credit card. What this really means is that you cannot get another credit card. Or, that if you use another card, you will be charged the new charge off rate.
Most credit card companies will also charge you a late fee every time you do not pay off the bill on time. Some of these fees are reported as annual percentage rates, which can be very expensive to your credit rating. If you do not pay your bill on time, the credit card company may even increase your credit limit. which means the limit can be increased again, with a higher interest rate.
The credit card company may also increase your credit limit without asking permission. If you have a line of credit, your limit will increase automatically each time you use it, so it may not seem like you have more credit, because your balance is still the same, when in fact, you are using that more.
If you are considering a loan or mortgage, your score will be lower than that of someone who has no credit, so take care not to get the two or three cards you need to increase it. You are more likely to get into debt with credit cards, and if you have too many credit cards, they will weigh you down. This will hurt your credit score.
When you take a look at your credit report, look carefully at everything that is on there. Then look for errors and if you find any, challenge it and get it corrected.