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What is a low credit score, and how can it affect you?

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Credit score, that little number that can determine almost how you live your life. When we are in grade school we do not learn about credit scores and the importance of keeping a healthy score. You might not even know how important it is which unfortunately many Americans are not really sure about the importance of having a healthy credit score. We know some about credit scores and fico scores. We know that when we apply for a car loan, mortgage, credit cards, our score will be checked. But how do we know what is a good score to have? And also what factors into our scores? These are some of the most important things you are going to need to know about your score. We are going to tell you everything that you need to know about your score, and what factors take into account when going over your score.

What is a credit score?

Your credit score is your personalized number of basically how responsible you are with your finances. The higher your score is the better it is for you. When determining your credit score, a number of things are looked at

  • On-time payments- Paying all of your bills on time and making sure nothing goes into collections is essential for a healthy credit score. When you are late on payments or even miss payments, it is recorded into your credit report. Although the same for when you make on-time payments. The more you pay your payments on time the better it looks for creditors looking to give you credit. The more they can trust you the better it is in getting approved for certain things. Ideally, it is better to set your payments to automatic payments so that you do not have to worry about paying your bills on time.
  • Credit history- A good credit score will have a good amount of healthy credit history attached to the report. Credit history can mean multiple credit cards, mortgage, car loans, personal loans, and the list goes on. Now, remember you do not want to have too much credit as that could be a red flag for creditors looking to approve you. Normally having 5 to 8 credit accounts is ideal. But you never want to take on to much responsibility as that might get you in over your head in bills.
  • Inquiries- Inquiries are tricky and can be annoying you have two different inquiries. A hard inquiry and a soft inquiry. A hard inquiry will appear on your credit report and will stay on there for two years. Now to many of these will potentially scare off creditors as it might look like you are trying to get to much credit. On the other hand, soft inquiries are more forgiving as they do not appear on your credit report. Now a soft inquiry is normally like a pre-approval check. When looking for credit it is better to get pre-approved normally if you are pre-approved you will be approved during the hard credit check.
  • Collection accounts- Having accounts in collections is never a good thing. It means that you did not pay your account and it was sent to a credit collection agency. These will normally stay on your credit report for about seven years. And with these, it can bring your credit score down a lot.
  • Credit lines- Most people are not aware of this, but going over your credit limit more than 30% can actually affect your credit score. Even though you have a credit limit it does not mean that you should reach it to its limit. Banks for some reason feel less comfortable when you go over your that 30% mark on your credit card.

What is low credit?

Low credit can mean a wide range of things. We asked our friends at credit score api what a low credit score looks like, and they gave us some helpful information. They said that “low credit scores are anything under 650” This is because banks and creditors feel uncomfortable that number. Now there are a few things that are taken into account. People who are new to the credit game may not have enough credit history. But that does not mean that you will get denied. There sometimes are programs for people with little credit. Creditors such as car loans sometimes are willing to work with people with little credit to help them establish credit.

We hope that some of this information helped you learn and understand your credit score and what a credit score is. We recommend that you take a look at your credit score periodically, to see where your at and to see what you can do better to increase your score and what you can do to keep that credit score healthy.

Story by Jacob Maslow

Augusta Health Augusta Free Press Kris McMackin CPA
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Augusta Free Press