What Effects My Credit Score?

Your credit score is one of those things that you always hear about but may not know why it is so important. This score tells lenders about your spending habits and how you manage money. The higher your credit score, the better your chances of being approved for loans and the better the interest rate on said loans. Several things can affect your credit score--both positively and negatively--and it's important to be aware of them so that you can be in better control of your finances.

Payment of Bills

How you pay your bills affects your credit score. Paying your bills on time has a positive effect on your credit score, according to creditreport.com. If possible pay the total amount due because this shows lenders that you are responsible with your money and capable of handling your finances efficiently. Likewise, if you pay your bills past the due date and are not able to pay at least the minimum balance, or neglect to pay them at all, your credit score will be negatively affected.

You have likely received invitations in the mail that offer you the option to transfer your current credit card debt to a credit card that has a lower interest rate or to consolidate your debt so that you have a one monthly payment. While such offers may be enticing and are a seemingly good idea to reduce your debt, they can hurt your credit score. If you decide to transfer or consolidate your debt, be prepared to see at least a five point drop on your credit report.

Your employment situation certainly affects your credit score. The longer you hold a position, the better your credit score will be. In the eyes of lenders, if you maintain steady employment, you are more likely to be able to pay your debts on time. If you frequently change jobs or have had periods of unemployment, your credit score will be lower. If this is the case, lenders will likely view you as someone who is likely to have difficulty with finances and will possibly have late or missed payments.

Outstanding debt is harmful to your credit score. A notable amount of debt will bring down this score, as it signifies that your income is divided among several different creditors and as such, there is a greater probability that you may not be able to pay your bills on time, if at all.