Factors That Affect Your Credit Score
Most people are not comfortable with their levels of financial literacy. Most people are not even knowledgeable enough to pass their financial literacy tests. The most popular feature of financial literacy people will struggle with is their credit score. Most people lack the necessary knowledge on how to increase their credit score or the reason it falls in the first place. You can learn everything you need to know by reading more here. If you are looking to expand your knowledge on financial literacy, what affects your credit score and how you can grow it, you are advised to read on. Many factors may lead to the drop of your credit score.
Your credit score could be dropping because you were unable to make your payments on time or you failed to make the payments altogether. You are definitely going to see a reduction in your credit score if you fail to make your loan or credit card payments on time or if you skip making the payments due to lack of funds.
High credit utilization is also another reason for your credit score reduction. Using your credit card regularly could lead to a reduction in your credit card score because it affects our credit utilization ratio. The credit utilization ratio is the ratio of credit you are eligible to and the amount of money you have charged to your credit card. Most experts will recommend having a credit utilization ratio of lower than 30 percent. You can hold conversations with your partner or think about how you can reduce your credit card spending if you fall out of the limits.
Your credit score could also be reduced due to many credit card application. If you have applied for too many credit cards within a short time, a lender may be forced to pull your credit report to determine your qualification. When a hard inquiry is pulled on your credit report, it could cost you up to 5 points on your overall credit score. Lenders will feel that you are in desperate need for money if you have too many credit card applications at a time which is a bad thing. Lenders will doubt your ability to make timely payments if they deem you desperate.
Unemployment is going to affect your credit score. Credit bureaus are going to notice a decrease in your income flow although they may not be aware when you lose your job. This could be even more damaging if I reduce your ability to make timely payments.
You can always improve your credit rating by setting up payment reminders for automatic payments to avoid accidentally missing payments. Make regular debt payments to improve your debt-to-credit ratio.