Understanding credit scores below the surface

The finance industry is one that is paved with good intentions and some little tricks under the surface. This is one of the most intricate and deep-rooted industries in the world, and so it should come as little surprise that many people struggle to understand the depths of it. Consider the understanding of credit scores and all they encompass, for example. Credit sores are so important, if for no other reason than because they determine how you can (and if you can) get assistance for contracts, bills, and loans (among other financial backings and innovators).

Perhaps surprisingly, most people do not know much about credit scores, other than knowing what credit score range means (if that). In fact, throughout the United States, there is a surprisingly high percentage of the population that know the bare minimum (if that) about the depths of credit scores. So, what are those depths? What are the important fundamentals of managing and preserving your credit score?

Always pay your bills on time

A monumental 35% of your credit score hinges on your payment history. Late payments stay on your credit report for up to seven years, and the impact of that negative mark against your name can be devastating. It should not even be a consideration to pay your bills late if you can avoid it, but it is still one of the most disarming errors that people continue to make. Even a seemingly small bill, like your mobile phone plan, puts a dint in your credit score if it goes unpaid. So, always pay your bills on time. Stay on top of your finances. Your credit score will thank you, and so will the future you.

Stay on top of your credit utilization

This is the most important core aspect of maintaining and preserving your credit score, after your payment history. Credit reporting agencies do not store your income information; instead, they use something called ‘credit utilisation’ in place of a typical debt-to-income ratio. Your credit utilisation represents 30% of your overall credit score, and is the amount of debt outstanding on your revolving credit sources (think credit cards, home equity lines). Your utilisation means more than you think it does, so pay close attention to it.

Check your credit reports frequently

This might seem obvious, but it might surprise you how often people do not prioritise keeping on top of their credit reports. Making sure that your credit reports are accurate is an important defining factor of your credit score, because if there is even the slightest of errors, leaving it unchecked can prove to have dire consequences. Sometimes data is entered incorrectly, or someone takes hold of your credit card by stealing it (or any other manner of errors, for that matter), and the result can be that your credit score suffers. So, check your reports frequently and always bring inaccuracies to the attention of the appropriate parties. Your credit score should not suffer because of something that is not your fault, but unless you actively and consistently check your credit reports, you unfortunately cannot always prevent it from happening.