Do you have any idea how much a good credit score can impact your life? It can open up job opportunities, make getting a cell phone contract or a new apartment a piece of cake, and even reduce your monthly payments on a car loan or mortgage. If you want good credit, though, there are a few things you need to focus on. Each credit reporting company looks at credit slightly differently, but they all emphasize different points. Here is a picture of what a good credit score looks like.
First off, a good credit score is based on a low amount of debt overall. Stationary debt like student loans and mortgages count here, but they really only count against you if you fail to make regular monthly payments on time. The most important thing here, though, is your debt-to-credit ratio. This involves revolving debt such as credit cards and lines of credit.
LetÆs say that you have a credit card with a $5,000 limit. If you use it only for gas and pay it off every month, youÆll be carrying a zero balance, which is great for your credit. If youÆre carrying a $2,000 balance, less than 50% of your limit, thatÆs not too bad and wonÆt count against you too much. If youÆre carrying a $4,000 balance, though, that will hurt your credit because youÆve almost maxed out your limit.
Debt-to-credit ratio is one of the most important pieces of a good credit score. This is why people who want good credit scores focus on paying down revolving debt and unsecured loans.
Another important piece of your score, too, is whether or not you make payments on time. Late payments on your cell phone, apartment, credit card, mortgage, car, or pretty much anything else can count against you here. Even one or two late payments can wreck a credit score, so most people with a high score have no late payments within the past few months or even years.
One other important aspect of the credit score is the age of your credit. The longer youÆve had at least one credit account, the more your score will improve. This is why itÆs important not to close lines of credit even after you arenÆt using them anymore. A person with good credit will generally leave these lines open, using them occasionally and paying them off immediately.