Things That Have an Effect on Your Credit Score
Most people are not so confident with their financial literacy as much as they would like to be. Most of the world’s population cannot even pass their financial literacy tests. The aspect of financial literacy many people struggle with the most is their credit score. Most people will watch their credit scores drop without knowing the cause or exactly how to raise it. You can learn everything you need to know by reading more here. Read on to boost your knowledge on the common factors that affect your credit rating and how you can raise it to its best. Many factors may lead to the drop of your credit score.
One of the most common reasons for a credit score drop is because of failure to make your payments on time or completely failing to make payments altogether. You may fail to make your credit card or loan payments as scheduled, or you fail to make the payments at all probably due to lack of money, but this will only reduce your credit rating.
Utilizing your credit more regularly could also be another reason for a credit drop. Using your credit card regularly could lead to a reduction in your credit card score because it affects our credit utilization ratio. The credit utilization ratio is the ratio of credit you are eligible to and the amount of money you have charged to your credit card. The most recommend credit utilization ratio should be below 30 percent. If it is not below this, you are advised to think about how you can lower your credit card spending or hold discussions with your partner.
Your credit score could also be reduced due to many credit card application. If you have applied for too many credit cards within a short time, a lender may be forced to pull your credit report to determine your qualification. When a hard inquiry is pulled on your credit report, it could cost you up to 5 points on your overall credit score. If you apply for too many credit cards at once, you are sending a bad message to lenders since it shows that you desperately need money. If a lender thinks you are desperate, they will question your ability to pay your bills in time.
Unemployment is just one of the other ways you can see a notable drop in your credit rating. Credit bureaus are going to notice a decrease in your income flow although they may not be aware when you lose your job. This could be even more damaging if I reduce your ability to make timely payments.
You can set up payment reminders or register for automated payments to avoid missing out on scheduled payments as a way of improving your credit rating. Paying down your debts is an excellent way to improve your debt-to-credit ratio.