The misconception that the more you make, the better your credit can be one of the most damaging illusions out there. While having a substantial income that allows you to repay your debt faster without a significant impact on your financial well-being is helpful, the truth is that most poor credit scores are a result of irresponsible credit management and the lack of knowledge about the credit system. Earning more money is a step towards financial stability, but your prospective lenders will most likely turn in your credit score’s direction when deciding on granting you a loan. The higher your three-digit representative, the better your chance of landing agreeable terms, low interest rates, and many other perks that come with excellent credit.
Checking your credit score for your personal reference is within your rights, and it will not lower it, despite the popular opinion. Keeping tabs on your credit affairs is the best guarantee that everything is in the right order, allowing you to gain all the rewards good credit can offer. Here’s why:
You Know Your Situation
Knowing where you stand with your creditworthiness will help you tremendously when applying for a personal loan, new credit card line, refinancing, or thinking about buying a house. By checking your credit score frequently, you can be quite certain of what to expect in the long run. This also applies to the interest rates you might be paying. If your credit score could use some improvement, it might be better to put those plans on hold until you work on preparing strategies for credit repair. It might be particularly helpful to keep tabs on your credit score when applying for a mortgage loan before the pre-approval process begins, as it might give you room to rethink the plan and know how to proceed.
It’s Time to Check Your Credit History Report
Checking your credit score and finding out it is not what you expected or would like to see can be truly heartbreaking, especially if you made some purchasing plans. But that knowledge can finally motivate you to take a peek inside your credit history report. The sophisticated computerized credit system happens to be effective but may also make some damaging mistakes. Knowing what to look for on your credit report will help you identify any inaccuracies that may be sinking your credit score. These errors, which are extremely common and happen among twenty percent of all consumers, can be easily and permanently disputed with the three credit bureaus and your creditors. The entire dispute process can take roughly up to thirty days, which is also essential to know before jumping to buying a house or new furniture.
Tip: You have three distinct credit history reports, and you can access them for free once every twelve months from all three nationwide credit reporting agencies: Equifax, TransUnion, and Experian.
Monitor Your Improvements
Starting the credit repair process is not enough – you need to be on constant alert throughout the journey. That’s why credit repair companies continuously monitor your improvements, all the credit activity, and your credit score. It is a time-consuming process but worth it in the end. Checking your credit score gives you the ability to see what is working and what might need another strategy. Seeing the improvements and boosted credit score also provides motivation and may affect your future financial decisions and behaviors!
Catching Fraudulent and Odd Activities on Your File
Possibly one of the most important reasons for checking your credit score on a regular basis. Fraud is widespread and can permanently and irreversibly damage your credit score. Monitoring the activity on your credit report will give you control over what is happening and what is affecting your credit score. Sometimes we make slips that we do not realize can impact our creditworthiness by being reported to the credit bureaus. As we learn from our mistakes, we know what to avoid when it comes to our financial capacities.
Why Do Banks Require a Positive Credit History?
Based on your credit history, the bank can infer whether you are a credible and reliable customer. It all comes down to whether you are solvent and pay your debts on time. From the lenders’ point of view, the past and the present are directly related. If you were in arrears in the past, there is a high risk that you will do so now.
It doesn’t matter if you are applying for a personal or a mortgage loan – every bank always checks your credit history. Although creditworthiness is assessed differently in individual institutions, the credit history is taken into account in each case.
A good credit history increases creditworthiness and often contributes to receiving a positive loan decision. On the other hand, negative credit history may become the reason why you were offered worse conditions, higher interest rates, or even rejection of the application.
Banks are not the only institutions that screen your credit history report. Your prospective employer can ask you to sign a consent form to perform a credit check before hiring you, which has become standard practice, specifically in companies that handle large sums of money. A better credit report can also be a determinant in qualifying you for a promotion at work. In addition, renting an apartment can also include a credit check as potential landlords want to assess the risk before agreeing to lease.
Factors Affecting a Negative Credit History
A less than perfect credit report can have various causes. Factors that influence it to the greatest extent include:
- Lack of timely payments – your ability to make payments on time is one of the most important aspects your potential lender will investigate. Missed or late payments not only drop your credit score but also can be the main culprit in loan rejection.
- Exceeding the limits on credit cards – surpassing the credit lines predetermined by the bank can affect the credit history. Most importantly, your credit utilization ratio goes up every time you max out your credit cards, which in turn negatively affects your credit score.
- No credit history – you are also financially unreliable if you have never taken out a loan or applied for credit cards before.