Does credit card debt affect my credit score?

It’s not uncommon for people to have a bad credit rating. For many, their creditworthiness remains a mystery. They don’t understand how to improve it. They think it’s important to get as many credit cards as possible. While this strategy may seem tempting, it’s not always the best solution. Before you try to fix your credit problem, it’s important to understand exactly what goes into your credit score.

Below are the most important things to consider when calculating your credit score:

Payment history: This will examine whether or not you are making late payments. You should always try to pay your bills on time.

New credit: These are all the new loans you receive within the last 90 days.

History: Older people with an established credit history have the advantage over younger people who are just starting out.

Amount of debt: This is where a lot of people get into trouble. It’s important to only borrow money if you can afford to pay it back.

Loan Types: There are 2 types – Safe and unsecured.

1) Sure: This is when loans are backed by something of tangible value. The most common are car loans and mortgages. Here, the loan is secured by something tangible in the event that it is in default.

2) Unsecured: Here the bank has no collateral to secure the loan. The most common unsecured loans are credit cards.

The effect of credit cards

Credit cards can affect your balance both positively and negatively, depending on how you use it. An established account that is used responsibly for many years will help. However, late payment will have a negative impact. Late payments remain in your credit history for years and occur even after the account closes.

It’s also important to only have a few well-established credit cards. It can be tempting to accept any pre-approved offer you receive, but too many will eventually lower your credit score.

Remember to use credit cards responsibly. To avoid expensive financing costs, make sure you pay off the balance each month. They should only be used in an emergency. When used correctly, they can help you establish a good loan for years.

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wendy encarnacion

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