A credit score is a number that lenders use to ascertain the risk of loaning money to a given borrower. Your credit history can decide if you can get a loan, and even where you live or work.
Also, Credit card companies, auto dealers, and mortgage bankers are three kinds of lenders who will examine your credit score. Before determining how much they are willing to loan and at what specific interest rate. Insurance companies and landlords may also look at the credit score to see how financially accountable you are. This is before issuing an insurance policy or renting out an apartment.
So, here are a few things that affect your credit score.
Lack of enough credit history
Few people may not know that having no credit history, or limited credit history, can create problems. This is close to having negative information in the credit history. If you do not presently have a credit history, you are not alone. Two in ten adults encounter “credit invisibility,” meaning they do not have a credit history with one of the three nationwide credit reporting companies.
Although many do not have enough credit history, often mentioned as having a “thin” credit, to create a credit score. People with no credit or thin history may find it strenuous to apply for a loan or rent an apartment.
What you can do:
Take steps to help build a credit history responsibly. Hence, several products are considered helpful in setting up or rebuilding credit histories, and they provide the chance to practice making on-time payments that communicate to the credit reporting companies. These may comprise secured credit cards, credit builder loans, or retail store credit cards.
Denied credit application
If you are on the refusal list of an application for a loan or line of credit, there are methods to refine your credit score or dispute imprecise information on the credit report.
What you can do:
- Find out why your application was on the denial list. If a lender rejects your application, they are needed under the Equal Credit Opportunity Act (ECOA) to tell you why your application was on the reject list or information that you have the right to know the reasons if you ask within 60 days.
- You were on the denial list due to an “insufficient credit file,” you can use the checklist to learn how to create and keep good credit.
- If a lender rejects your application based on your credit report, they must lay out specific information about why your application is on the reject list.
- Review your credit reports. Make sure the information in your credit reports is accurate. If you find errors, take action to correct them.
- Refine your credit history with practices, such as paying bills on time and restricting your credit use to greater than a third of the credit limit.
Fraud or identity theft
Identity theft takes place when someone uses your name, Social Security number, date of birth, or other identifying information, without consent, to commit fraud.
What you can do:
If you think you have been a victim of fraud or identity theft, there are several steps you can take to protect your personal information from being exploited.
- Reviewing the credit reports each year to make sure they have only information about you.
- Immediately reporting any incorrect or dubious information on your credit reports.
- Having a fraud alert or security freeze on your credit reports.
- Think about signing up for identity monitoring or credit monitoring services. Few of these services are free, and others cost money.
- If you think about these services, be aware that there are other free and low-cost services to protect consumers, including a security freeze or fraud alert.
Thus for building or rebuilding your credit can take time and planning. If you want additional help, consider talking to a credit counselor. Most reliable credit counseling organizations do provide free educational materials and workshops, though some do not. Creating or refining your credit will not happen overnight. Anyone who claims to be able to do this for you may be cheating you.
A credit score is especially important in getting approved for loans and getting the best interest rates. You do not need to preoccupy over the scoring instructions. That is the type of score that lenders want to see. Generally, if you manage your credit responsibly, your score will excel.