A strong credit history is crucial to your overall credit score and can be the key to unlocking other financial doors, such as low interest rates on car and house loans. Although you don’t necessarily need credit cards to survive, it can be tough to get by without the ability to obtain credit for major purchases. Your credit history can make a difference in your ability to get the loan you need.
Whenever you are evaluated for any type of loan, your credit score is one of the key factors used to determine whether you are approved. While other factors are also considered, such as your income and (sometimes) your debt-to-income ratio, your credit score is one of the primary factors creditors use to make a decision about extending credit to you.
Your credit score is composed of several different factors, but your credit history accounts for 35 percent of your score, the largest of all categories considered. Other factors, such as type of credit and amounts owed, are also taken into account, but they only account for 10 to 30 percent of your score.
Why is credit history so important?
Your credit history is a summary of how you’ve handled your finances. It gives the clearest picture of your long-term ability to manage credit. Because credit history is so important, closing a credit card you’ve had for a long time can be a bad idea.
If you have a history of late or missed payments, it will impact your credit score and make it more difficult to obtain credit when you need it. Your credit rating can impact more than just your ability to get a loan; many landlords will require a credit report before they will rent to you, and employees will investigate your credit history as an indication of reliability.
If you do have poor credit history, there are legitimate ways to rebuild it, so avoid scams, such as file segregation, that offer a quick fix to your credit score. Negative items will eventually expire. With wise use of your credit cards and consistent payments to all of your debts, you can easily build credit history and improve your credit score.
If you’re confused about what you need to do to improve your credit score, Ovation can help. If you would like more information about our services, call us for a free consultation at 866-639-3426.