It is quite understandable that credit scores play a big role in our financial lives. A good credit score (generally above 700) helps you receive fast approvals for renting an apartment or helps you receive better insurance rates for a car or house. While a good credit score can get you far, there are large numbers of Americans who have poor or bad credit. A common reason why many people may have poor credit is that they lack an understanding of which factors actually impact their credit score or how to improve their credit. If you want a bright financial future, it’s important to understand how to build good credit.
What Affects Your Credit Score?
There are five factors that make up your credit score. We call these The Big Five:
- Your credit history. This accounts for 35% of your overall credit score.
- Your amounts owed, accounting for another 30%.
- The types of credits you have.
- How long you are using credit
- How often are you applying for new credit (Inquiries)
Of the five factors that calculate your credit score, your payment history is the primary weighing factor affects your credit score. The number one contributor to a bad credit is the inability make reliable payments and accumulating debt. If thousands of dollars in debt is the primary cause of your bad credit, it best to setup a debt repayment plan to eliminate your debt.
The Debt Snowball Plan
A great repayment plan option would be the ‘debt snowball plan’. Debt snowball plan is a debt reduction strategy. It is a good option if you have multiple debt payments, such as credit cards and loans. This plan suggests that you pay off debts in order from the smallest debt working your way up to the largest until you’ve gained enough momentum to wipe them all clean. This method works because if in any circumstance you start paying your largest debt first, you would see a slower progress than if you started off with a smaller one. This causes one to feel less motivated which affects our ability to stick with your plan towards debt freedom. There are several other repayment plan options which can help you eliminate debt. You can work with a credit counseling agency, a debt consolidation program, or a credit repair consultant like Moodie Bluez Consulting. When it comes to eliminating debt, it is important to at least have a plan. Regardless of which plan you choose, it is always important to remember to keep with the plan – because having low debt and a high credit score is key to your financial life!