Credit scores are 3-digit numbers used by lenders to evaluate the risk associated with lending money. They have a huge impact on your ability to get loans. Confusion or carelessness can result in higher interest rates, lower credit limits, unwanted fees or major hits to your credit score.
Maintain Your Balance
Whether it is a car loan or a credit card purchase, new debt will temporarily decrease your credit score. On the other hand, balancing your debt load will positively impact your score.
Amounts owed account for 30% of your credit score. The more debt you are carrying the higher risk you appear to creditors. A maxed out credit card could cost you between 10 and 45 points and will lead to higher interest rates.
Many people falsely believe that old credit cards should be cancelled. Credit card accounts shouldn’t be closed except in special circumstances. Borrowers should hold onto old credit cards, even if the rate is not great. Closing an account wipes out all the past history that could be beneficial in maintaining the best scores.
Do not open a lot of credit cards at once. Instead maintain your balance by only applying for and opening new credit accounts when needed. Avoid applying for store credit cards for a temporary discount.These cards tend to have high interest rates and usually won’t help your credit score in the long run.
Bill Holmes is President of Ann Arbor Mortgage Companies, a full-service mortgage banker that was established in 1996. With a staff of eight and over 113 years of combined experience, Ann Arbor Mortgage Companies has closed over 5,000 mortgages worth an access of $800,000,000.