Understanding Your Credit Score
I would like to start this article of mind by sharing my friend’s story, He is Matt.
Matt is somehow gifted when it comes of getting the best deals, best offers, reasonable prices and bargains every time he went on shopping. He always seems to get a little extra out of every transaction that he makes. This is not a new thing to all of us, maybe someone you knew is one of them, I may say he is the super coupon master , the deal finder, the click till you get a seat you want airline passenger etc.
But Matt is completely baffled by his credit score. It’s fine, but not that good. One day he tries to apply for a car loan but he is unsatisfied with the rate that has been given, because the main reason is he’s getting an “Average” credit score. So we sat down and talk this particular matter for a moment. It turns out; Matt is a prompt bill payer. He never missed a payment, and never had anything charged-off or similar. He also is also earning good amount of money. For that matter, he thinks these all should add up to an excellent credit score. And I think he’s right to certain a degree. But he also does one vital thing that really jeopardizes him: he switches from credit card to credit card.
Matt’s eye for value makes it so he kept on skipping from credit card to credit card whenever a better offers or price comes up. For him to show a steady payment history he carries a small credit card balance so he can keep making payments. But the existing balance is constantly transferred to another card. I assume that Matt transfers that balance every year, or even more. Since he doesn’t want a pile of open cards that he doesn’t use, he tends to close previous accounts. So meaning, Matt has no genuine stability in terms of credit cards. He doesn’t understand that the credit score is not just a reflection on your ability to pay back borrowed money or purchased items. But also, it is a reflection of your overall desirability to the creditors. Logically speaking, they don’t desire someone who’s going to drop them the moment someone better comes along.
That is why having a long term credit card or two doesn’t hurt you in some point, as a matter of fact, it helps. The estimated length of credit will be 15% of your overall credit score. Considering his history, Matt would have excellent credit instead of “average” credit if he simply avoid switching from card to card and stick to one or two card.
The grass isn’t always greener; sometimes it’s pale, dark and shallow. It’s true in many aspects of life, including credit.