When I have spoken to people about credit scores and credit reports one of the things, I often ask people I am talking to is if they request their free annual credit report from a reputable source. Sadly, few often answer the question with an enthusiastic yes. I believe they are missing out on vital information about their financial health. Therefore, I am going to tell you why keeping a track of your credit score is important.
How Credit Scores Work
Before we can understand why credit scores are important, we must know how they work. Just to let you know, most people do not have just one score. Different credit agencies use a variety of factors to calculate a score for you. Some will focus on different factors to make you a score so keep the possible variations in mind. But most will look at credit history, history of payments, percentage credit utilization and available credit. These are put through their special scoring formula to give you a score.
Keeping track of your score through the same credit score provider can help you see a meaningful process over time. Switching credit score providers will become confusing quickly and it will make it challenging to understand if you are doing the right things to put your credit score in a good place.
In addition to understanding how credit scores work, it’s crucial to be aware of the factors that can lead to a bad credit score. Several actions and financial behaviors can negatively impact your creditworthiness. One of the primary contributors is a history of late or missed payments on credit accounts, such as credit cards or loans. Consistently failing to meet payment deadlines signals to lenders that you may be a higher risk borrower. This might make it difficult to get loans when you need them, although there are options for urgent loans for bad credit if you are in dire need of financial support. It’s essential to manage your finances responsibly to maintain a positive credit history and avoid actions that can lead to a lower credit score.
Future Plans
For anyone with future plans that will require a financial boost, keeping a track of your credit score is absolutely critical. It can be the difference between getting a mortgage on your dream home and not being able to afford a mortgage at all. Your credit score signals to lenders how you handle the money they are considering lending to you. So, it would be a good idea to keep a track of what lenders think of you. Even if you go for a purchase money mortgage, you will still need to make sure your credit score is a good one, so it can provide you with a solid background.
Your credit score affects a lot more than just a mortgage application as well. It can affect any kind of loan application. If you want to take our finance on a car, it will be run by your credit record and your credit score will be taken into account. This can be the difference between paying 30% APR and 10% APR which over years of paying back can make $1000s of dollars difference. Reducing the amount of interest, you must pay will increase your financial freedom. No one wants to be paying crazy high-interest rates in the long term. They are financially crippling.
Challenge and Defend your scores
Even though there is a big system that is detailed and complex, mistakes still happen. Sometimes missed payments can be misreported and any missed payments will dramatically affect your credit score. It can damage it by up to 100 points in some systems. Any kind of lawsuit judgment and collection account can affect your scores too so if they appear and are not true, challenge them. They are human too and make mistakes.
Keeping up track of your credit score is important because if you were to be unlucky enough to suffer from identity theft it can seriously affect your credit score. Monitoring your credit score regularly will make it easier to spot fraudulent activity and file a lawsuit against the responsible party with the help of a consumer law attorney, thus reducing the overall damage inflicted on your credit score.
To conclude, keeping track of your credit score is important for a variety of reasons. Your future plans could be seriously affected if you do not keep track of your credit score because you could go for a loan and be declined. Identity theft is more common then you think so if you regularly check your credit score so you can correct any inaccuracies or fraud that might appear on your account sooner rather than later.