Worldwide Success

Financial success has different meanings to different people.  Some people think of financial success as living in luxury, owning an expensive yatch, or having champagne and caviar for breakfast.  Others see it as freedom to do what you want when you want it.  Yet others compare their financial status to that of family, friends and neighbors.   These are all subjective interpretations of financial success which are meaningless to the financial world.  One objective and very important measure of financial success that is closely watched by financial institutions and that has a definite impact to many important financial transactions is your credit score.  Understanding your credit score, how it is calculated, and how it impacts your day-to-day financial life is critical to your financial success.

Your credit score is a number that is calculated based on your credit history and other information that is found on your credit report.  It provides creditors with a measure of the likelihood that you will pay your debts on time and is used to measure the risk creditors will take by lending you money.  Your credit score determines the interest rate you will be able to obtain from creditors, including credit card companies, banks and mortgage lenders.  Additionally, you credit score is often reviewed by potential employers, landlords, or others individuals or institutions with whom you want to do financial transactions.  Clearly, monitoring and keeping a strong credit score is in your best interest.

So how do you know what your credit score is?   There are three credit reporting agencies that keep track of your credit score.  You have the right to order one free credit report from each of them every year.  But if you want to know your credit score you will have to pay $5.95 to $7.95 when you order you credit report.  The three reporting agencies are TransUnion, Equifax and Experian, but you can order from all three by going to AnnualCreditReport.com.

Now that you know how to obtain your credit score, you need to understand the factors that impact how your credit score is calculated.  Here is a breakdown of the parameters that count towards your credit score with their respective weights:

• New Credit – 10%
• Type of Credit You’re Using – 10%
• Length of Credit History – 15%
• Amount you Owe – 30%
• Payment History – 35%

But how exactly do you keep a high score?  Here are a few suggestions:

Pay Your Bills on Time

This is perhaps one of the most important things that you can do to keep a high score, since your payment history makes up more than a third of your credit score.  A recent late payment will hurt your score more than a missed payment from several years ago.

Pay Off Credit Balances

One very effective technique for keeping a high credit score is to pay off you credit balance, because it reduces your credit utilization which is the total debt divided by the total credit available to you.  The lower your credit utilization the higher your credit score.

Don’t Close Accounts

If you already have open credit accounts, don’t close them.  They increase the amount of credit available to you and therefore reduce your credit utilization.

Avoid Opening New Accounts

Don’t open new accounts however, unless you don’t have any credit.  Even though opening a new account helps your credit utilization, it hurts more than it helps by lowering the average age of the accounts in your credit report and by signaling that you need credit.  If there is just one thing you should always remember about credit, it is this:

In the world of credit, the less you need it the easier and cheaper it is to get it.

It is very important that you monitor your credit report and keep track of your credit score every year because errors do occur and they can have a significant negative impact to your finances.  As identity theft becomes more and more common these days, it is important to scrutinize these reports to see if there is anything suspicious, such as open credits with institutions you have never dealt with.

Your credit score is a very important measure of your financial success.  It is not something you can use to impress your cousins or neighbors, but it is certainly something the financial world pays close attention to.

 Independent Thought:

People, who don’t have a credit rating good enough to get a credit debt, look for mortgages against their property. It’s important to get quotes for bank of america mortgage and other famous banks’ services facilitating easy re-payment. Having failed to pay the mortgage back, usually people look for options like second mortgage and mortgage refinancing. A good mortgage broker will always advise to consult insurance companies to evaluate your property before contacting the financer. It will help minimizing many risks besides providing the best remortgages as per your budget and requirements.

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