Your credit score is important for several reasons. First, it determines whether you will be approved for a loan. Secondly, it decides what the interest rate of your loan will be. Also, employers will make a decision about your potential promotion or employment based on your credit score. Furthermore, your credit score is also significant for some landlords, insurance companies, and utility companies. Hence, it’s very important for you to have a good credit score. Here we look into four factors that affect your credit score.
Personal Loans Affect Your Credit Score
A personal loan is a great way to cover unexpected expenses, and it can also be used to consolidate credit cards, pay for vacations, weddings, among other purposes. A personal loan can be unsecured and secured, which means you need collateral like a house, or a car, for instance. Personal loans will be paid off over a certain amount of time with monthly payments and fixed interest rates. However, keep in mind that there are some personal loans with variable interest rates.
When you’re considering borrowing money, you’ll need to understand that personal loans will impact your credit score, as it increases your overall debt. How personal loans affect your credit score depends on if you missed repayments, consolidate or on the amount you borrowed.
On the other hand, if you pay your installments regularly and on time, a personal loan may even raise your credit score. But, make sure you do thorough research and compare different options form different lenders.
Your payment history is a very important factor for your credit score. As a matter of fact, when you’re late with your payments, including bills, it negatively influences your score. Other issues like debt settlements, bankruptcy, tax liens will ruin your credit score, and it will be very difficult for you to get approved for a loan. Furthermore, the frequency of missed payments influences your credit score. This is why it’s important to pay your bills on time each month, and if you can put in place reminders or automate certain monthly payments.
Length of Credit History
This factor takes into consideration how long you have been using credit, the oldest account you have, and the average age of your accounts. When you have an older credit age, it is better for your credit score, that is when you don’t have late payments or other negative information in your history.
This is why it’s important to be mindful when you open new accounts, or you close several old accounts at once. Additionally, keep in mind that you can lower your credit score if you close your oldest account. That’s why you might want to keep your oldest account open even if you don’t use it as you used to.
The Pursuit of New Credit
This doesn’t necessarily damage your credit score, but when you make more inquires in a short period of time, it can cost you many points. That said, you need to keep your inquires to a minimum. For example, one or two shouldn’t hurt your score. On the other hand, hard inquires like applications for a loan or a credit card you’ve made in the last 24 months impact your score in the last 12 months after that they don’t influence your score anymore.
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Image source, Cafe Credit, via Flickr.