Credit scores are used by many lenders in the United States to determine if an individual is credit-worthy.
About 30% of the credit score is based upon how much debt a person has, but more the way the person has managed this debt is weighed more heavily than the actual amount of debt. As such, it is possible to have a high credit rating, despite having a high debt load. However, the key is to have a good debt to credit limit ration, which most loan officers suggest should be between 30% and 50% of your total credit limit. This should of course be not taken as gospel, because these individuals make money when you use and repay money in your credit line. However, maintaining a credit balance that is in a good proportion compared to your total credit line does increase your credit score.
Since the way that an individual manages their debt is usually more important than the amount of debt they have, it is essential to avoid making late payments on bills. It is also important to pay off high interest credit lines first, prioritizing the debt in a smart manner.
Another factor that goes into a credit report is the amount of recent inquiries for new credit lines. It is not uncommon for someone who has bad credit or is having credit problems to jump on any offers they are sent in the mail for credit lines. However, this can count against you and lower your credit score, so it is usually recommended to avoid numerous credit inquires and instead limit them to only a week or two period each year.
The length of a persons credit history is also very important variable included in a credit score. For those who have a credit lines that they are not using, it is not typically recommended to cancel these lines. Instead, you can leave the line open, but destroy the credit card so that it can not be used. In this manner, the credit line will have a much longer history, even though you couldn't technically use it without having them send you a new credit card.
While managing your debt effectively is extremely important, spending your actual money in an efficient manner is also imperative. Many people like to use computerized programs, such as Quicken, to help manage their money. Using a debit card can also be a great way to spend money, because you can quickly and easily check how much money you have spent online. Some people even find that by taking out some cash at the beginning of each week, they are less likely to spend money, because it feels more 'real.'
Having a high credit score can be very important when applying for a loan or a mortgage. Statistically, it will also net you a lower interest rate, so having an un-healthy credit score can end up costing you a great deal of money.
Charles is a writer who deals with financial issues, such as home mortgages. When applying for your first mortgage, having a credit score between 760 and 850 can make getting a mortgage with favorable terms much easier. Today, there are many advantages for first time home owner, including several home buyers tax credit and a first time home buyers tax credit for up to $8,000 that does not need to be paid back.
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