Demystifying the Credit Score

Editor’s Note: This is a Guest post by Wendy Lau of New York City

A good credit score may not be top priority for young adults, but it should be. A credit score can impact many aspects of one’s life. Whether you’re looking for employment, looking to purchase or rent a place to live, or looking to take out a loan for a car, one’s credit score can have an impact on any one of these areas.

A credit score is defined by a number that can range anywhere from 300 to 850. The higher your credit score, the better shape you’re in. A high credit score can mean a lower interest rate for that car loan or home loan. It can also help a potential employer or a potential landlord develop a better impression of you. By knowing that you have a good credit score, it leads one to believe you are a responsible individual who cares about your finances. Each credit agency has a slightly different form of evaluation, but if you have a credit score of 720 or better you are in good shape. A credit score at this level means you will likely be eligible to obtain that loan at the lowest possible rate.

Here are some of the best ways to help maintain good credit:

  • Pay your bills on time and in full.
  • Keep your debt below 10 percent of your revolving accounts.
  • Use your credit responsibly. When there is lack of activity on an account it does not help provide information on how well you repay debt.
  • Here are some of the best ways to improve your credit score:

  • Do not build on consecutive late payments. Lenders typically are understanding it there is one late payment, but two or more late payments signify a problem.
  • Pay a portion of the amount due if that is all you can afford. It is better to pay a portion than not making a payment at all.
  • If you are going to be late on payment, it is better to be late on one account versus several accounts.
  • Limit your applications for credit in a 12-month period. The more credit applications you submit, the more credit checks there are. Lenders viewing your account do not like to see many “hard inquiries,” it may signify to them that you are desperate to obtain credit.
  • This post was written by Wendy Lau of New York City who has managed to maintain a positive credit score above 800 with all 3 major credit agencies. She is a guest blogger for My Dog Ate My Blog and a writer on accredited online colleges for Guide to Online Schools.

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