Credit Score = How You Manage Your Money

Controlling your finances can be very stressful and overwhelming.

It is really tough to make financial goals and keep to it. But the long term benefit will give you security as you move through life.

Let's talk about your credit score.

A credit score ranges from 300-900 and all banks, phone companies, landlords, and trust or insurance companies make a judgment about how well you are managing your money.

Do you know how your credit score is calculated?  Do you know the impact of your money management on your credit score? Do you understand the importance of a good credit score?

The things included on your credit report contain but not limited to:

• Credit cards
• Loans
• Lines of Credit
• Student Loans
• Utility Bills
• Phone Bills
• Collection Items
• Legal Action

Here are some tips to follow if you plan on improving your credit score:

•  It is very important that you pay your bills in full every month or at least pay the minimum payment. If for any reason you are not able to make your payment in a timely manner, talk to your lender or the company that you owe. Most of the time, they will make an arrangement with you
•  Make sure that you don't use more than half of your credit limit. Using more than half or maxing out your credit is an indication that you might have a spending problem or cash flow issues
• Avoid applying for too much credit. The more inquiries you do, the less your credit score gets

It is very stressful and challenging to rebuild credit once you have a problem. My advice is that you pay close attention to your monthly statements, spend what you have and avoid using too much credit.

This is how your credit score is calculated

1.     Your payment history is calculated as 35% of your credit score. Lenders worry more about how well you pay your current debt. Lenders also want to know if you will repay any new loan granted to you.This is a good way to determine your credibility and character as a borrower. Keep in mind that payment on your credit facilities are reported separately.

2.     How much you owe is weighted at 30% of your credit score. Lenders want to know how much debt you currently have and the impact your debt has on your budget. Maxing out your credit cards will have a negative impact on this factor.

3.     The length of your credit history weighs 15%.  The longer your credit history, the better your credit score will be. It takes time to really determine how responsible an individual is with their credit. If you've had credit for 10 years and you make your payments as agreed, then you have earned the right to get lower interest rate. How long and how well you've had and used your credit is always a good negotiating tool when applying for any kind of credit facility.

4.     Credit application weighs 10%. Avoid applying for too many credit cards or lines of credit because it could be an indication that you need cash flow. Applying for credit often will also impact your credit score negatively. This factor considers credit that you recently applied for or opened. It also looks at the number of times that your credit was checked in the past 5 years.

5.     The type of credit used is 10% of your total score. A credit card and a line of credit are considered revolving credit. This means that you will always have access to the credit limit as long as you make the payment. While a loan goes down as you pay it and cannot be reuse. I like telling my client to take a loan for their major purchases so that they are sure when the payment will be completely made. It is easier to get in trouble with revolving credit than with a loan.

Your money management skills have a lot of correlation with your credit score. Your credit score is a reflection of how well you manage your available liquid fund.

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