Learn The Most Important Factors that Affect Creditworthiness
The first time you attain your credit card is one moment that evokes excitement. Finally, you have that financial freedom to buy things as and when you please. If you are a teenager or young adult, you don’t have to rely on your parents‘ credit card or financial help any longer. It is one of the pointers that show you are mature and can now manage your finances.
However, acquiring a credit card can also mean a financial future marked with unending debt especially if you are not ready for it. When you are ready for a credit card, it means you have understood how to use it effectively and repercussions of misusing it. For instance, if you get excited and spend your credit money as soon as possible, then it ceases to make meaning. There are some basic things you can’t do without like food, water, and others. Always make sure you have these before depleting your credit card.
Creditworthiness is what financial institutions will consider before they issue your credit word. It will help them to judge whether you will be able to pay your credit or loan. They will consider your credit history, payment, and Credit score, among other things. There are credit reporting agencies that look into a potential customer’s history and draw their creditworthiness. This will determine whether you get that loan/ credit card or not. Read on to discover more.
Credit History
The way you handle your credit determines your creditworthiness. You don’t want to be the one with late credit payments or missed payments. The more you miss a payment, you will be charged late fees that increase your monthly payment. These monies accumulate so fast and before long, you are in a deep financial pit that might take you ages to clear. Also, this portrays you as a financially irresponsible person. As such, it might be hard for you to access a credit card or loan with any financial institution.
To avoid this, ensure you pay in time your monthly credit or just the minimum payment. This puts you up-to-date with all your payments and will reflect in your credit report. If you are this type, you will find it easy to get a credit card because banks are confident you will pay. Credit history takes 35% of credit score and therefore cannot be ignored.
Credit Score
A credit score is a numerical number that lenders use to measure your creditworthiness. Usually, auto dealers, mortgage bankers, and credit card companies consider your credit score before they can grant you a credit card or loan. Based on your credit score, they determine how much loan to give you and at what interest. Also, landlords, insurance companies, and employers may first look at your credit score before they rent out their apartment, issue an insurance policy, or giving you a job.
Credit score ranges from 300-850 based on length of credit history, credit history, and amount owed. Payment history contributes 30% of the total credit score while the amount owed takes30% and length of credit history 15%. The higher the credit score, the higher your creditworthiness, and the lower your credit score, the lower your creditworthiness.
Credit Payment
After you receive that loan or credit card, don’t get so comfortable that you forget you have to pay back. This will lead to the accumulation of debt and will lower your credit score. Always make it a point to pay your monthly credit or at least, pay more than the monthly minimum payment. Alternatively, schedule payment plans to assist you to pay off past due debt. Every time you miss a monthly payment, you pay late charges on top of interest and premium. You don’t want more monies accumulating on the already heavy financial burden hence you need to pay in time.
When you are up-to-date with your payment, it increases your credit score. Consequently, you can get a credit card with less interest rate, fewer terms and conditions, and fewer fees. When you start on this note, it will mean more money in your pocket with very little to worry about.
Last Remark
Every financial institution will consider your creditworthiness before they render you their services. They first ascertain whether you will be able to pay their credit back. This they do by considering your credit history, credit score, and payment history. You want to keep all these factors up-to-date or high which in turn increases your creditworthiness.