To err is human, and we all make mistakes. However, when it comes to financial mistakes, what you might classify as an “oops” moment is considered much more seriously by people who look at your credit report before making decisions that can positively or negatively impact you.
“Your credit score is taken into consideration in a variety of different scenarios,” according to Leslie H. Tayne, Esq., founder and managing director of financial debt law firm, Tayne Law Group, P.C.
“Some of the most common include when applying for a mortgage, credit card, personal loan, car lease or financing, certain insurance companies (especially when in the case of home or auto insurance), privately funded student loans, and renting an apartment – as this is often requested by many landlords,” Tayne tells HER Magazine.
Also, a potential employer can view your credit report – although they can’t access your credit score. And this happens more often than you might think. A report by the Society of Human Resource Management found that 47% of employers view a job candidate’s credit report before making a hiring decision. Why? Well, 45% want to prevent theft and fraud, while 22% want to cover all of their bases so they won’t be found guilty of negligence.
In addition, according to the Federal Trade Commission, utility companies use your social security number to check your credit report – especially your history with other utility companies. This information is used to decide if you will need to pay a deposit to obtain service.
By now, you’re starting to see why a good credit score is so important. “Think of your credit report as a ‘report card’ of your financial habits and your credit score as your grade,” Tayne explains. She says potential lenders use this information to determine how risky of a borrower you are.
“A credit score, for the vast majority of people, is the ticket to financing large items like home ownership, a car and even post-secondary education,” Tayne says. “Even if your score is good enough to get approved for credit or a loan, you could find yourself getting charged a higher interest rate than you would if your score was in the ‘excellent’ range.”
Even if you don’t plan on doing anything that requires good credit right now, Tayne warns against waiting until you do need a good credit score, and then trying frantically to clean it up.
Nancy E. Bistritz, director of public relations & communications at Equifax, tell HER Magazine, “There are several factors that might affect a credit score, and it’s important to note that lenders view these factors in different ways.”
Bistritz provides the following examples:
- Number of credit accounts. Credit scoring models look at the mix of different types of credit you have, credit cards, installment loans, mortgages, and store accounts. If you have too many different credit accounts, it could affect your credit score.
- New accounts that have been opened. Be mindful of opening too many accounts at once. Scoring models look at how many new accounts you have as well as how many new accounts you’ve applied for recently. This may indicate you are planning on taking on lots of new debt which could indicate a greater credit risk.
- Age of credit accounts. In general, creditors and lenders like to see that you’ve been able to properly handle credit accounts over a period of time.
- Types of credit accounts. Creditors like to see that you’re able to handle multiple accounts of different types and the credit score reflects this.
- Balances and total available credit. Creditors and lenders prefer to see a lower ratio of how much debt you’re carrying compared with how much available credit you have on a particular account.
- Do you have any judgments, liens, foreclosures, bankruptcies, short sales, or delinquencies that have been reported to creditors? Having this type of information on your credit history may impact your credit score. If you have gone through a reversal of fortune, and had to file for bankruptcy or completed a foreclosure, your credit score will reflect this negative information for several years.
So, what can you do to improve your credit score? “Ensure you always make on-time payments, keep your credit utilization low (ideally under 30%), and avoid leaving balances (even if small) on your credit cards,” advises Tayne.
She also recommends checking your credit report on at least an annual basis, just to be sure there are no errors. “Keep in mind, drastic change is not to be expected overnight; however, practicing good credit habits, including managing your debt well, will eventually pay off and reward you in the end with an excellent credit score.”
For more information on your credit score, Bistritz recommends the following 2-minute Equifax videos: