Roughly 70% of Americans fail to pay off their credit–card balances in full each month. There has also been a significant rise in the number of consumers facing interest rates over 25%, possibly as a result of late payments or exceeding credit limits. Do you know how these and other credit situations affect your credit rating?
Knowing your credit score and understanding its significance are important because the number can directly affect the interest rates you pay for mortgages, car loans, and credit cards.
The first step to maintaining solid credit is staying informed. You can keep track of your credit history by requesting a free copy of your credit report at www.annualcreditreport.com. All consumers are entitled to one free credit report a year from each of the national credit–reporting agencies — Equifax, Experian, and TransUnion.
The exact formula used in calculating your credit score remains a mystery, but there are several important factors to be aware of. Payment history is probably the most important factor. A single late payment can have a negative effect on your credit. Consider setting up automatic payments that can be withdrawn directly from your bank account.
The amount of credit you use is also a consideration. High balances on credit cards carried over month after month can lower your credit score. You should generally keep a debt load that is well below your credit limit.
Your credit score may be one of the most important numbers of your financial life. Stay informed and use your knowledge to help improve your financial situation.
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