Credit Ratings Play a Role in Financial Health, Loan Interest | Finance


Every adult has heard the term “credit score”.

Whether it’s applying for a credit card, car loan, or mortgage, businesses will access your credit report and score to decide how risky it would be in lending you funds.

According to Joe Del Vecchio, financial advisor at Landolt Securities Inc. in Solon, and Elizabeth Scheiderer, senior financial advisor at NCA Financial in Mayfield Heights, it’s critical to understand what makes up your scores.

“A credit score is a three-digit number that is almost a summary of your credit report,” Scheiderer said. “Your report is what determines that number, and it provides an industry standard for lenders and consumers to determine your creditworthiness. This is a benchmark that lenders can use to compare your loan potential. And of course, the higher the number, the better in the eyes of the lender.

Much of your credit score comes from unpaid debt, Del Vecchio said.

“It could be credit cards, car loans, home loans, secured and unsecured debt, how much (credit) you can use and how much you have used,” he said. “And then it depends on whether you can pay on time. If you’re more than 30 days late, it can all affect your credit score.

Del Vecchio added that the age of your credit is also essential.

“The older the lines of credit, the better,” he said. “If you close a line of credit it will show that less credit is available and that can be a slippery slope.”

Credit scores play a direct role in your ability to obtain reasonable loans.

“It’s part of the mystique of a credit score. A lot of us are focusing on this and looking at the numbers, but it doesn’t matter until you are looking to take on new debt.

Typically, a good credit score is considered to be over 700.

Del Vecchio said that a low credit score also makes it more difficult for people who need loans to get advantageous loans.

“It’s a shame because people who earn less money or are less creditworthy tend to have lower credit scores, so they are billed at a higher rate and that makes them more at risk of not paying. “, he explained. “It’s a steep slope.”

To give yourself plenty of time to build a “good” score, start early. Consider a secure card, or a cash-backed card, for your kids, Scheiderer said.

“You open a card and, say, deposit $ 200, then you have a limit of $ 200 associated with it,” she explained. “It’s your own money, which is why the bank is comfortable taking this risk. Then you make payments as you use it. Eventually this can be transferred to an unsecured card, which we all have. “

But before you start any credit journey, know where you are at.

“Know what’s on your report and how much debt you owe,” Del Vecchio suggested. “You should also sign up with a company to monitor and track your score each month. Not because of the score, but if something suspicious shows up on your credit report, you want to know it.

And if real progress isn’t being made on your score, don’t beat yourself up.

“Try not to focus too much on the numbers – it’s good to be aware of that, but lenders also look at different things that don’t show up on your credit report,” Scheiderer said.

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