Financial decisions are always to be taken wisely as they have a long-term effect not only on your financial matters but also your credit score. A credit score is nothing but a rating which shows the financial reliability of a person depending upon his previous financial transaction history. The more the credit score,the more are the chances of you getting a high limit on credit cards or loans. Banks and financial institutions provide you finance faster if you have a good credit score.Also, when it comes to trust factor customers with high credit scores are trusted the most. Hence having a good credit score is very important.
Financial factors affecting your credit score
The number of debts:
The greater number of debts or borrowed credits you have the less will be your credit score as this indicates that you are using most the available credit you have and somewhere shows your incapability to manage your financial resources.
The past payments:
One of the prominent factors which affect your credit score is your payment history. Your credit score will be more if you have done payments on time and less if you fail missed any of your installmentsor you had a history of late payments then you will land up having a low credit score.
Repetitive checking of credit scores:
Very few people know this but if you check your credit score more frequently then there are high chances that your credit score may fall by a few decimals.This anyway does not mean that checking your credit score will lower your credit score. This scenario only occurs when a credit score is checked more frequently.
Bad credit report:
if a bank or financial collector submits any credit report mentioning your irregular payments, bankruptcy, careless attitude toward debt payments,etc. then it highly pulls down your credit score and, in such cases, the chance of credit score increasing over time is very low.
Factors that lead to low credit score
Late /no payment of bills/ installments:
One of most and the commonly affecting credit score factors is late or no payment of dues or installments. Especially if you are a debtor and you miss your due date or even do not pay on the promised date, then the credit score is affected badly.
Settling secured loans with security instead of money:
People take secured loans in exchange for some secured property such as home, vehicle, property,etc. In this case, if you fail to payback the borrowed money, then the collectors will own possession over the asset and settle the loan as they have no other option left. In such failure of loan repayment, the credit score is badly affected.
Bankruptcy is when a person has nothing left and no source to repay his loan.This is the time when the financial institutions sell whatever assets the debtor owns and sell them in order to recover the loan money.Submitting bankruptcy has adverse effects on credit score and after this e chance of getting a loan or credit card is next to impossible.
Settling debts at comparatively low rates:
There are cases when an individual has certain debts and fails to repay them,and the worst is that he does not own any assets,ormaybe his loan is unsecured.In such cases, the bank agrees to settle the loan at whatever best amount the debtor has. Even though the loan is closed,but the bad effect on credit score may reflect for years.
There are many factors which have a negative effect on the credit score,but there are many things you can do on an individual basis to improve your credit score. If not sure, you can also take guidance from expertsin several financial matters. You can visit PFA blog to know more.
Ways to improve credit score
Checking credit score and credit report:
If you know that if have a low credit score and have made firm decisions to improve it the first step is to check your credit score and ask for a free credit report which can be provided by any credit bureaus. In the credit report, you will get a brief idea about what has affected your credit score, the feedbacks from the collectors,etc.
Set payment reminders and stick to automated electronic payments:
if you are a busy person and forget due dates set reminders for your due dates or make all your payments into ECS wherein all the payments will be automatically debited,and you do not need to pay any late payment charges.
Make it a point to Clear the long-term dues on priority:
Thelong-term pending dues are the ones who are negatively affecting your credit score.So, make a priority to pay them off first before the interest charges doom you off.
Take financial guidance:
If you are trying your best and still not able to get your desired credit score than you may take help of financial advisors or agencies. They will not only help you to improve your credit score but will also guide you in debt management and investments.
A smart credit card is rolling:
In case you are falling short of funds for the due payments make these payments from credit cards and then once you have enough money within the month then use it off to pay your credit card bills.In this way, you will pay off your debts as well as credit card bills.
Pay off /settle debts with the highest interest first:
If you have multiple debts and are planning to settle one of your debts then settle the one which has the highest rate of interest.Also, while paying installmentsto pay the ones first which have high-interest charges as the later on you will have to pay high late payment fees including the principal amount.
Your credit score is affected by even minor financial steps. To maintain a good credit score always see to it that you do not have more lender money. Always try to maintain a positive balance between your savings and spending.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including business debt consolidation and start-ups.