When you’re just beginning your journey to financial literacy and debt-free living, you might be baffled by your credit score, unsure what it all means, and completely unclear if you have “good” or “bad” credit by creditors’ standards. That’s a normal part of the learning curve. Luckily, you’ll soon discover the ins and outs of creditworthiness and how your credit score is calculated when you begin to read financial freedom information and blog posts like these.
What creditors are truly looking for when they evaluate your creditworthiness is multi-faceted. There’s an algorithm that calculates your credit score based on several criteria, like the length of your credit history, how regularly you make your payments on time, and your credit to debt ratio. In other words, their decision to assign you a credit score isn’t just pulled out of thin air or arbitrarily decided.
If you’re regularly missing payments or maxing out your credit cards month after month, this tends to have a negative effect on your overall credit score. It only takes a couple of months of not making regular payments or only paying your minimum for creditors to notice that behavior. If you’re brand new to having credit, for example, if you just opened your first credit card, you’ll likely notice that your credit score will increase the longer you make your payments reliably, on time, and in full, because creditors will begin to see you as trustworthy to make your payments.
Curious about how creditors decide your credit score? Contact Cain and Daniels today to learn about what goes into whether your credit is deemed “good” or “bad.”