Have you wondered why your credit card score is always being asked when you apply for a credit card or other types of credit? Your score is an important factor in the assessment and processing of your credit application because your score is directly proportional to your creditworthiness.
This means, when your score is high, you can easily access goods that can be purchased through credit. Also, with high credit score, you will most likely be easily and quickly approved for a loan because the creditor can forgo credit investigation to check on your personal and financial background.
For example, if you are planning to purchase a house; you can immediately pre-qualify for a housing loan because of your exceptional credit score. Another thing since your score is high; the creditor is willing to give you lower interest rates because they are considering you a low risk.
The Benefits of Understanding the Calculation for Credit Card Score
It will help you a lot if you understand how your credit card score is being calculated. The three main credit bureaus are in charge of setting up the criteria being used in the calculation of your credit score. These bureaus are independent institutions and are not connected with any credit card company.
Generally, these three main bureaus are using the FICO scoring criteria in calculating your credit score that are based on five major categories consisting of amounts owed, payment history, new credit, length of credit history, and types of credit used with corresponding percentages.
However, the three bureaus differ in their particular calculation models and the actual formula that they use for calculation highly classified. Therefore, it would be best for you to understand the possible and general criteria being used in calculating your credit score in order for you to manage your score effectively.
How to Improve Your Credit Card Score
You already know the importance of having high credit card score and general criteria on how they are calculated. But, how will you improve your score if it is not high enough?
All transactions you make on credit are automatically recorded by the three main credit bureaus whether the amounts are large or small. The bureaus will then make their calculation based on all the reports given to them by your lenders.
Therefore, the most useful way to improve your credit score is to understand the criteria used for calculation and avoiding doing things that will cause negative effects on your score.
Delayed payments or missing a payment will definitely cause a negative point in your score. Therefore, you must make sure that you have the funds available for all purchases that you made when the due date comes. Take into consideration unexpected situations that will hinder paying your credits on time when making your budget.
Frequent usage of your credit card and almost using up your credit limit will also bring your credit score down. Going beyond your credit limit will crash your credit score. It is best that you monitor your purchases and space out the use of your card.
On the other hand, not using your credit card will not improve your credit score, but will bring it down and might even lead to the cancellation of your card. Make sure that you use your card moderately and that you keep your purchases within ten to forty five percent of your monthly credit limit.
In summary, your credit card score is an outline of your financial history that is being used to determine your creditworthiness. The main basis of this evaluation is your previous actions that are directly in relation with how you pay back the loans you have taken.