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There are so many things out there that don’t prepare you for adulthood. Your parents and your professors in college may tell you all about finding a good job that’ll get you kickstarted on the career of your dreams. You’ll also be told all about the merits of getting on the property ladder, and why you should – at the tender age of 21 – start thinking about retirement. The thing is, with student debt, credit card debt and the smaller debts that you may have accumulated to get you started in life, it can often feel like you’ve missed the starting gun without even trying.
If there is one thing that most of those who are in your life with the advice don’t tell you about it’s your credit rating. Your credit score is a little number that can determine everything from how much cash you can borrow to whether you are considered a good tenant for a rental. A credit score is, unfortunately, one of those things that has to stay high enough to be seen as good enough, and you have to work on that pretty much as soon as you can! Credit scores are a mystery to most, and there are a lot of articles out there that will tell you what can affect your score. The thing is, what about the things that you believe affect your credit score but don’t? There are plenty of articles that tell you about what affects your score, but sometimes these can be wrong.
Repairing your credit with help from companies like Bonsai Finance, taking it from being low to high again – can change the way that you are viewed by creditors and potential mortgage lenders. Knowing how your credit score works include knowing all the things that don’t touch your score. Knowing how your credit score is calculated is just as vital, and here’s what is considered:
- Payment history
- Owed debts
- Length of credit history
- New credit accounts
- A mix of credit types
When you know how your credit score is calculated, you can deduce what does actually affect your score. But what about those things that don’t affect it? Do you know about those?
- Getting Your Report. Any time you apply for any kind of credit, you activate a hard search on your account. Loan companies and credit card companies can see the searches that are performed by others. Any hard searches stay on your credit report for two years, which is why it’s such a good idea to do as few searches and applications for credit as possible. However, when you look at your own report and download it, you don’t activate that ‘hard search’. Instead, this ends in a soft search on your account and means that you can view your credit score and report as many times as you like without having an effect on your score. Hard searches can affect your score by five or so points at a time – so minimize those while you keep a hawk eye on your number.
- Your Salary. Your income is imperative in the time it takes to pay your debts because how much you earn affects how much you can pay. However, you need to consider the fact that what you earn doesn’t count when it comes to your credit score. You can have the best credit score while unemployed as long as you’re managing your accounts correctly. You could even be in a very powerful position with lousy credit – especially if you’re not managing your money properly.
- How Smart You Are. Your level of education has no bearing on your creditworthiness. It all comes down to how you choose to manage your bills, so education comes under the same banner as salary – you could have the best Ivy League education or you could have only a high school diploma, as long as your bills are managed and your debts maintained, you have nothing to worry about with your credit score.
- Account Balances. Your credit score only affects how you manage your debts. Your current savings and credit accounts won’t impact your score in any way at all. Your bank isn’t going to report your banking activity to your creditors, and so there’s no need for your current balances to have an effect on your credit score. This doesn’t mean that you should be reckless with your savings and your balances; you should still manage them properly, for sensible’s sake!
- Having Active Debt. If there is one myth that needs to be busted, it’s the one that says carrying debt can give your credit rating a boost. How much you spend on your credit card can have an impact on your credit, of course, but leaving a balance on there isn’t necessary to bump your credit up. All you get from a higher balance is a bigger interest amount each month.
- Rent Payments. Rent is the biggest amount that you pay out each month if you’re not a homeowner. Paying your rent on time each month doesn’t have an impact on your score, unfortunately, though there are companies that are aiming to change that! It should be something that can positively impact your credit score because you’re making a regular and pretty big payment on time each month!
- Paying Insurance. Credit score matters when it comes to taking out insurance but paying for insurance on time or missing payments makes no difference to your overall score. Skipping payments may not hurt your score, but it can make your insurance provider cancel your policy. It’s best to ensure that your payments happen on time every time, to avoid this happening.
Now that you know what won’t touch your credit score, you can rest a little easier at night knowing that not every single payment is going to be a bad one! Take your time to work on your credit and get your score up to par just for you – but don’t panic about every missed payment.