Your credit score affects your ability to borrow money and influences the interest you’ll pay on that loan. Most people don’t know how these scores are calculated. Here’s what you need to know.
All Credit Scores are Not the Same
People often assume their credit score is a single three-digit number. In truth each of the three major credit bureaus, Experian, Equifax and TransUnion, score you differently since they don’t have the exact same data. Be clear where your ratings come from when sharing your scores.
Closing Accounts Won’t Always Boost Scores
Closing old or inactive accounts may inadvertently lower your credit score because your credit history appears shorter. If you want to simplify, close newer credit accounts first.
Paying Off a Debt Doesn’t Remove it from Your History
Once a debt goes to collection, or you’ve established a history of late payments, your credit score is impacted even if you pay off what you owe. While your score will get a boost if you pay off an old debt, it may not be by as much as you think. The best way to increase your credit score is to make payments on time every month.
Co-signing a Loan Impacts Your Scores
When you co-sign for someone else’s loan, you are ultimately responsible for the debt. If the person you’re co-signed with does not pay, your credit score will be impacted. Determine ahead of time if the person you’re co-signing with can afford the loan and if it’s worth the risk to your own credit score.
Not sure who to trust when making decisions that could affect your credit score? Refer to a Mel Foster Co. agent for guidance.