Your credit score predicts how creditworthy you are and affects whether you are approved for credit as well as how much you will pay in interest.
Information such as the number and types of your credit accounts, your payment history, and the amount of outstanding debt you owe is collected by credit bureaus and is used to calculate a credit score.
There are a few key points to remember when it comes to the health of your credit score:
Make payments on time. Punctuality in paying your bills is the single most important factor in maintaining a healthy credit score. If your credit report indicates that you have paid bills late, had an account referred to collections, or declared bankruptcy, it will certainly reflect negatively on your credit score.
Keep balances low. Live within your means, control your spending, and don’t max out your credit cards! High balances and a high percentage of available credit being used will translate to lower credit scores.
Avoid unnecessary credit inquiries. Too many new applications for credit will lower your score. Only apply for and open new credit accounts if you really need to.
Check your credit report. Inaccuracies are fairly common, and can be corrected to improve your credit score. It is also important to check your credit report so you can guard against identity theft. The Fair Credit Reporting Act (FCRA) requires each of the three major credit bureaus—Equifax, Experian, and TransUnion—to provide you with a free copy of your credit report, at your request, once every 12 months.
If your credit score is not as robust as you would like it to be, following these steps will soon get you on the road to financial good health.