Credit Score 101

  • June 22, 2015

You probably know that your credit score plays a big role when you are trying to convince a lender to loan you a large amount of money for a purchase such as a car or a home. But do you know how a credit score works? Dig in now!
 
Do you know what your credit utilitarian ration is? It is the credit you have used versus your available credit. By keeping the used credit lower, you are indicating to lenders that you spend well within your means.
 
Making periodic payments on your credit card balance is another way to help give your credit score a boost. The lower the balance you have at any given time, the better. Check with your credit card companies to learn more about how many payments they can support within a month and adjust to what works best for you and your finances.
 
Even if you make one late payment but generally maintain a stellar payment period, this can reflect poorly on your credit score. Get late payments removed with a “good-will deletion” if you are usually on time.
 
Financial institutions and lenders check your credit score because it provides insight as to whether you will be responsible when paying your loan off and your spending habits as a consumer. Before you are granted a loan, a lender wants to do their due diligence in ensuring you are responsible borrower.
 
Closing cards all at once, while it may seem like a smart way to get rid of cards in your name, is actually very harmful to your score. Closing multiple accounts at once could indicate you are abandoning your accounts and therefore not a trustworthy borrower.
 
It is important that you check your credit report annually. In doing this, you are able to double check your status and ensure your identity is safe. Establish a goal score you would like to reach and check how closely you have come to achieving this goal. This will help you stay on track.
 
Avoid situations that could put a mark on your record. Set up automatic payments to avoid late payments. Do not pay off debt on a credit card and immediately close the account. Keep track of your spending habits in order to maintain a realistic budget.
 
Is your mailbox frequently filled up with offers of credit cards you qualify for? Don’t sign up for every credit card offered to you, as this can also look bad. A lender might not feel comfortable lending to a borrower that takes any and all credit offered them.
 
If credit scores remain a mystery to you, talk to a trusted financial expert today.

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