Your Credit Rating and How It Works

Your credit rating plays many important roles in your life. It can dictate not only whether you get a loan, but also whether you qualify for insurance and, in some cases, a job. Today, comparing credit report providers at somewhere like Moneysupermarket.com may get you three different credit ratings, or scores, because each provider uses slightly different criteria. But for the most part, your credit score is based on five aspects.

Credit score criteria

1. The single most important aspect of your credit score is your payment history, which makes up 35% of your score. This includes whether you pay back your debts on time and whether you have any past due or charged-off balances.

2. The next most important criteria for your credit rating is how much you owe. Generally, the less you owe the better, although you are measured on how much you owe in relation to how much credit you have, rather than purely how much debt you have. 3. You generally need to keep your debt to less than 30% of your available credit. If you go over this ratio, it will negatively affect your credit score.

4. The next most important aspect of your credit score is your credit history. This measures how long you have had credit and the time since your last activity on each account. The types of credit you use and how much new credit you have both counts for the least amount of your credit score -10% each.

5. Types of credit measures whether you have more than one type of account. This could be credit cards, car loans, mortgages and so on. New credit measures how often you open a new credit account.

Improving your credit score

There are many ways you can improve your credit score or at least keep it from declining.

Making sure to pay all your bills on time is very important. Though many creditors won't report a single late payment to the credit bureaus, they will report payments that are 60 or more days past due or multiple late payments.

You should also try to pay credit balances in full each month or failing that, pay as much as you possibly can toward the debt. This keeps your balances low and also limits the amount of finance charges you pay.

Some people think it's a good idea to close credit cards that you no longer use. But this actually is of little benefit. Closing a card does not erase any negative history and it lowers the amount of credit you have available, which can raise your debt ratio.

One of the easiest things you can do to improve your credit and something many people overlook is to make sure there are no mistakes on your credit report. Reports suggest that up to 25% of credit reports could contain errors, so it's important to check your report at least annually to make sure your score isn't being unfairly affected.

This article was written by Karl Thompson

Credit Cards Have Advantages

There is often an assumption made by people who have gotten into credit card debt that credit cards are terrible. The truth is that they are terrible if you don't pay them off in full every month. If you have the discipline to pay them off each month in full, credit cards have many advantages. A few of these advantages include the following:

Creating A Credit History: Having a credit card that you pay off each month helps create a credit history which will improve your credit score. An improved credit score will allow you to get loans for a car or house at much better interest rates saving you money.

You Get An Interest Free Loan: from the time you buy something with a credit card until the time you pay off the credit card, you get an interest free loan.

Your receive Damage and Loss Protection: When you purchase something with a credit card, you are protected from damage or loss. You do not receive this protection when you use cash.

You Get Theft Protection: If an item that you purchase gets stolen within a specified period of time, your credit card often covers the replacement of the stolen item.

These are just a few ways that credit cards can be advantageous. The key point to remember is that this is only the case if you pay of the balance of the credit card each month in full.