How Your Credit Score Works

Are you looking to get a loan to fix up the house some personal loan calculators are asking about your credit score? It may seem like everybody talks about high and low credit scores, but what does that mean? How do you make sure your score is good enough for a low rate? Just follow these simple rules and your loan officer will be smiling when they run your credit check.

Paying Bills on Time

According to Equifax, your financial history is the first thing that creditors consider. If you pay your monthly utilities, your credit cards, and student loans on time every month, your score will gain points over time. If this is your first loan, you may wish to open a small credit card six months before applying, make a purchase, and pay off the bill for several months. This establishes a baseline for your credit.

Use Only Just Enough Credit

One thing that will lower your score is having too much credit. You know all those store credit cards that offer free points, free miles, or instant discounts on your purchase? Every time you open a new account, it lowers your score. When you have too much open credit compared to your income, that is another mark against you. The experts suggest keeping one or two credit cards and only accepting a line of credit for the amount of the purchase, not more.

Being a Good Tenant

Yes, your landlord can negatively affect your credit score. If you are always late with rent, leave an apartment without notice, or break a lease without cause, that can appear on your credit report. Since multiple credit agencies create scores, you never know if one agency will include your rental history as part of their particular calculator. So, make the landlord happy and see a better credit score should be your mantra.

Being a Good Employee

Your salary is definitely taken into consideration when applying for a car loan, but it doesn’t actually affect your credit score. Maintaining a positive relationship with your employer does. If you switch jobs often or are terminated with cause, that can appear as a black mark on your score as an indication that you may not be as responsible as the lender would like. Self-employed workers may have a harder time building their score as there is no employer providing feedback to the credit agencies.What is a good score? The average score is 650, with 900 being absolutely perfect. If your score is below 650, you may have a harder time getting a loan with a good rate and favorable payment terms. You may check your score once a year for free without raising or lowering your score. If your score is struggling, spend six months focusing on doing all the right things and watch it rise. Once you improve the score, it is time to go get that new car! Happy shopping!