What’s the first thing that comes to mind when you say the words “credit score?”
For some, that is music to their financial ears as their score tips the scales at 650 or above, largely considered a good score.
The rest of us cringe and the words “credit score” leave us looking down and shrugging our shoulders because we’re not proud of the fact that our score is hardly worth noting, barely salvageable and, in some cases, badly in need of improvement.
That improvement often is viewed as insurmountable, difficult or almost as though it is the Mount Everest of credit, when in actuality increasing your credit score can be as simple as a hop, skip and a small jump from being completely oblivious to that score versus knowing exactly what makes it tick.
A low credit score, first off, is the last thing you want to have, particularly if you’re trying to borrow money for the things that matter most: home, car, school loans, etc. Those types of loans aren’t going to come easy, and if your credit score isn’t so hot, you’ll either get turned down without much fanfare or your interest rate is going to be so high, you’ll wish you would have decided against borrowing at all.
Raising your credit score starts with the simplest of moves: pay on time. Late payments drop your score significantly and if that habit becomes habitual, you’ll be essentially flagged as someone who can’t be trusted to pay back debt, thus the chances of you getting it are going to be even more difficult.
Your credit score also is negatively affected by your debt to income ratio and that debt ceiling. The latter simply means your credit isn’t going to look so good if you have a credit card with a $5,000 limit and the amount charged on it is, well, $5,000. Available credit is key to being able to have a positive score.
Furthermore, you should be around the 70 to 30 mark as far as debt to income ratio, meaning that about 30 percent of your expenses play off of your total income. Anything higher (although 60 to 40 is passable) is going to be viewed as too much debt versus not enough income to borrow more or be seen as a viable option as far as money being loaned to you.
Good credit doesn't mean everything, but the weight of how it is viewed in the world of borrowing money or financial standing in general is pretty remarkable. Raising that score doesn’t have to consume you but rather be made a priority out of the simple steps to fix it.
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