6 Credit Score Basics

In a previous article, we talked about you and your credit score. Today I have compiled a list of six credit score basics that you should remember.

There are six credit score basics that you should keep in mind:

1. Pull your credit report every single year and review it carefully for mistakes. Be aware that there are three credit reporting agencies: Equifax, Experian and TransUnion. All three collect your credit information on a monthly basis and they use the information they have to give you a credit score. They collect their data from public records, your credit card information and lender inquires.

2. Put together a household budget that is realistic and stick to it. The key here is a "realistic budget". You need a budget that you can actually stick to. If you are constantly making "unauthorized" purchases, your budget is useless.

3. Resist the urge to charge unnecessary items on a charge card. If you have trouble resisting the urge to buy, try not to carry your credit card with you. If you have to make a trip home to get it, it is easier to resist the urge to make a purchase.

4. Keep your information private as much as possible. In this day and age, everyone wants to collect your information and put it in a data base. That has made it fairly easy to have your identity stolen. Determine what information you want out there and try to limit where it goes.

5. Keep your debt to income ratio low. You ideally want to have a lot more income than you do debt. Most banks and financial institutions looks for a debt to income ratio that is less than 36% of what your gross income is. For example, if you make $10,000, your debt payments should not be more than $3,600.

6. Make all payments on time and when possible, pay more than the minimum on credit cards. Late payments will hurt your credit score. However, if you can pay more than the minimum payment due each month, that will help your credit score.

The bottom line is that you can't take credit for granted. If you have good credit, you must protect it. If you have bad credit, you should improve it or you will miss out on many things that life has to offer.