The Importance of Knowing About and Protecting Your Credit Score

Have you ever been turned down for a loan because you have a poor credit score? If so, you are not alone. You are only one of many people who do not know how their spending and borrowing habits can have a damaging effect on their future borrowing power.

When you apply for a loan, one of the most important factors that have a direct bearing on whether or not the lender will approve your application is the information about you contained in your credit report. Here lenders will be able to see where you owe money and how often you have applied for loans. They will see a detailed description of your monthly payments – how much you pay, whether you have been late with any payments and whether you have missed any payments. If you have had a court judgement against you or have declared bankruptcy within the past few years, this information will be here as well.

Just because your credit score may be tarnished does not automatically rule you out for borrowing money. The lender may still approve the loan but you will have to pay a higher rate of interest. In order to know what lenders see when they access your credit score, you should obtain your own credit report. Two of the credit reference agencies to which merchants and lenders report are Equifax and Experian. You do have the right to view your own file and to obtain a free report once a year. If you need to have more than one a year, you can obtain the report for a small fee.

You can contact the agencies by post or by email to obtain the report you need. You will receive the report through the post and you should take the time to review it thoroughly to make sure that all the information is accurate. First, make sure that your name and address is listed correctly. Check all the debts that have been paid in full or are still outstanding to make sure that they are your legitimate debts. Identity theft has led to many people being refused credit because of loans they didn’t repay but which were falsely obtained using their names.

Check the details of each account listed on your credit report. Here you will see whether or not you have been late with any of your payments. Making your payments on time accounts for 35% of your credit score and is one of the things that lenders use to determine whether or not you are a good risk to repay any money that you borrow.

The length of time you have been borrowing or using credit cards accounts for another 15%. The total amount of your debt makes up another 30%, the balances on credit cards and store cards accounts for 10% and the final 10% comes from long-standing debts. It doesn’t matter whether you did make a payment if it was past the due date or if you made two payments in one following a payment that you missed. These factors do reflect negatively on your credit report.

In addition to correcting any mistakes or discrepancies you may find on your credit report, there are other ways of repairing damaged credit scores. For example, there are credit cards specifically designed for those with less than perfect credit. The credit limits are low and allow you some flexibility in making necessary purchases when you are low on funds.

Once you use this type of credit card and make your payments on time, you can start rebuilding your credit. Lenders also look kindly on approving debt consolidation loans in which you combine your existing debts or those with the highest rates of interest into a lower and more manageable monthly payment. This also gives you a chance to repair your score when you make your payments and pay off your outstanding debts.

You do need to have a credit score in order to obtain credit. This is how lenders determine your ability to repay the money you borrow. As a student in college, you can obtain a student credit card with a low limit and start building your credit history for the time when you need to borrow larger amounts of money, such as for buying a car or a home.

Monitoring your credit score closely will help you avoid making the mistake of making too many applications for loans within a short period of time. Even if you are approved for these loans, numerous applications will lower your score.

If you are denied credit, this is also a negative item on your report. The lower your score is, the harder it will be for you to rebuild it to a level acceptable to lenders. Even a space of three months is enough to see a slight rise in your score once you know the importance of such a score.