What You Need to Know Before Applying for a Credit Card!

Are you thinking about applying for a credit card? Would you like to improve your credit score? Learning more about your credit report and what factors determine your credit score is beneficial. It will help you make informed decisions and build your credit.  It's important to have strong financial skills, and a good credit history can show lenders that you are a trustworthy borrower.  

What is a credit score? 

Your credit score is a number that is based on your financial history and use of credit. It is also called your "FICO score." You have three FICO scores:

• Experian
  
• TransUnion
• Equifax

In general, below 620 is a bad credit score, and above 760 is a great credit score. Keeping a good credit score can help you qualify for better interest rates when making important loans or purchases (i.e., a car or home) in the future.

What impacts your credit score?

Bill Payment

Your bill payment history makes up the largest part (35%) of your credit score.  Bill payment information that impacts your credit score includes:

• How long you wait to pay your bills
• How much you owe
• How many bills you have that you are not paying at all
• The number of lawsuits filed against you
• Any negative information that a collection agency has about you

If you pay your bills on time, you will be more likely to have a good credit score.  For example, missing a loan payment will hurt your credit score.

Amount of Credit You Have and Owe

One-third of your credit score is based on the money you owe on your credit accounts. If you owe a lot of money, your credit score will be lower. It would be wise not max out your credit cards. This part also considers, how much credit you could use or how much credit is available to you also known as your credit limit. If you have too many credit cards, you will lower your credit score. Opening a new credit card every time a store clerk offers you a chance to open one can be damaging to your credit.  It would be wise to limit the amount of credit cards you have in your name.

Length of Your Credit History

This part comprises 15% of your score and takes into consideration how long you've had credit and the age of your loans. If you manage your credit responsibly, your credit score will improve over time.

New Credit Inquiries

This part is 10% of your score and refers to any actions you've taken recently involving credit. Applying for several loans or credit cards in a short period of time will hurt your score.  This includes recent inquiries into your credit report made by lenders and landlords. Make sure you pace yourself when signing up for credit.  Try to avoid credit checks if possible.

Type of Credit

This part is 10% of your credit score and refers to the lines of credit you carry. If you have a credit card, a car loan, and student loans these will all be included in this area of your score. A greater variety of credit types will have a positive impact on this part of your score. Therefore, it is better to have a car loan, a home loan, and a credit card, rather than just having three different credit cards.

Check out this page for other helpful information when it comes to managing your finances for the short and long term.