Most people understand the consequences of poor credit, at least to some degree. What’s far less clear is exactly what a credit score is all about and just how people can change their poor credit for the better.
Here a few things about credit that you might not know.
1. It’s not as complicated as you might think
People tend to think of credit as mysterious, complex and impossible to understand. At a basic level, credit scores are far less complicated than people might believe.
We overthink credit to a big degree. Credit is really about three things:
• Paying your bills on time every single month.
• Keeping your balances as low as possible.
• Not applying for too much credit too often.
Do those three things over and over, and your credit is going to be just fine. Obviously, those things can be easier said than done, especially keeping balances low, but if you can manage it, you’ll be on your way to a lifetime of good credit.
2. It doesn’t always matter
If you’re planning to apply for a mortgage, car loan or credit card sometime soon, you definitely need to be mindful of your score. That’s especially true if your score is on the low side. In that case, you either need to make moves to improve your score, or at least avoid doing anything that can harm your score. Most of the time, however, there’s no need to obsess over your credit score. If you’re not applying for a loan, looking for car insurance or trying to rent a new apartment in the near future, you probably don’t have to think too much about your credit score. Simply keep paying your bills on time and minimising your balances. Then, when the time comes again that you need a good credit score, it’ll be there waiting for you.
3. The higher the score, the harder it can fall
So, you finally got the credit score of your dreams. You worked so hard for it, paying down those big balances and getting every payment in on time, and now it is time to relax and enjoy the fruits of your labor. After all, what took so long to build will take just as much time to tear down in case things go badly, right?
Wrong. You could be one late payment away from kissing that awesome credit score goodbye. While every individual case is different, someone with a great score might take a bigger credit hit from a mistake than would someone with less-than-perfect credit. Whatever your score, the bottom line is that mistakes can kill your credit.
The good news, however, is that many of those mistakes are avoidable. For example, you can make late payments a thing of the past by setting up automatic payments with your bank. Just be sure that you set the amount to pay more than the minimum each month. Otherwise, your debt can grow faster than you’d imagine.