What are you doing wrong with your Credit Score?

What are you doing wrong with your Credit Score

What is the credit score? 

The credit score is understood as the score given to you by the Credit Information Societies (SIC)-Credit Bureau or Credit Circle- which measures how good a payer you are. The evaluation is made based on credit history. It considers various factors, such as prompt payment, to determine the risk that you will not meet the obligations you wish to acquire. 

In general terms, the credit score is a rating that allows credit-granting entities to know if they are eligible to receive credit or not. 

Free credit score

The credit score is a product offered by Credit Information Societies (SIC), better known as Credit Bureaus, and complements the Special Credit Report

Although the law establishes that the Special Credit Report can be consulted for free once every 12 months, the same is not the case for the Credit Score. Knowing the Credit Score is not free and has a cost of around 50 pesos, either with the Credit Bureau or with the Credit Circle. 

What is the credit score? 

The credit score is the rating given by the Credit Bureau and the Credit Circle, which allows you to know how good a payer you are. This rating ranges from 300 to 850 points and is awarded by evaluating a series of factors

In this regard, to grant a rating, elements such as behavior with past credits are evaluated, that is if payments were punctual or not; the balance of the credits, the age, and how you combine the financing. 

In this sense, a good credit score is considered to be more than 750 points. With this qualification, you can obtain new credits or request improvements in some.

According to the established parameters, a score of 650 is regular, with which it is considered that although you are at an acceptable level with your financial health, you cannot obtain new credits; from 300 to 550, you are not eligible to receive recognition, and you have to improve. 

Why is my credit score going down? 

A low credit score is the result of poor financial health. This element can be deduced by observing delays in payments or having several current credits that could put people’s ability to pay at risk. 

The best way to obtain a good credit score is optimal credit management. That is, paying on time and only requesting financing that can be paid without compromising income. 

What is credit scoring? 

Credit scoring is the procedure used by credit grantors to evaluate financing applicants. 

This scheme considers various elements of the potential debtor, which allow evaluating the risk profile, and how reliable it would be to lend or not. According to the result obtained, the decision to grant the credit is made. 

Among other things, credit scoring considers elements such as income level, current credits, payment behavior, and any aspect that may compromise a person’s salary.  

Advantages of having a good credit score

Having a good credit score is essential to access credit products. If it is understood that the credit score is a letter of introduction to the entities that grant financing, having a good rating represents facilitating the procedures. 

Thus, being well evaluated in this area not only opens the door to new financing options whenever you want but also allows you to aspire to better current credit conditions. 

Disadvantages of the credit score

There can be no disadvantages to having a credit score if it is evaluated in-depth. And it is that this tool allows to measure the status of each person, and based on it, carry out actions to improve. 

It should be noted that the credit scores even include recommendations, which focus on the points to improve to obtain an optimal evaluation. 

For all of us, it must be crucial to be up to date with our banking obligations and avoid affecting your score since a good personal economy generates growth, avoids extra discomfort expenses, and, above all, allows you to have an active credit life.

Perhaps we do not know when we will need a loan, but what we need to be clear about is that if we have bad financial habits and a low score with credit bureaus, it will be challenging to acquire financing.

Below, I list some indicators that are probably present in your life that affect your score to achieve financial success:

This is what you are doing wrong, affecting your Credit Score.

You don’t make a budget.

The budget is the essential tool to know where the money is going. You can split 70% of your income and spend it on fixed expenses like housing, education, health, and transportation, no matter how much you earn. The other 30% can be divided between savings, entertainment, and debt payment. 

If you do this exercise and discover that you are allocating more than a third of your income to the last item, you are likely in a situation of over-indebtedness, and you should consider implementing an action plan; a credit repair company may be the alternative.

You live the crazy life

When making your budget, you detected items you are devoting more income than you should. For example, you exceed the entertainment item because you like to party. You must be very disciplined, set goals, and, if you have debts, settle them before planning the next outing or little-needed purchase.

You have debts, and you don’t care.

If you use your credit cards as if they were an extension of your salary, pay one card with another, or plan to apply for a loan to pay off other obligations, keep in mind that you are not rooting out the problem. The recommendation is to cut off all sources of credit—sudden borrowing.

You don’t seek expert help.

There are various strategies you can follow to pay off your debts. If these exceed your payment capacity, but you intend to liquidate them and seek to rejoin the credit system, the best alternative is to approach Solve your Debt, the specialists in debt repair. 

And your credit score?

It is worth remembering that financial institutions ask for documents such as the credit score to calculate the possibility of a payment default by the applicant. This indicator is a qualification granted by the Credit Information Companies (SIC), ranging from 300 to 850 points. The higher the number, the higher the chance of approval.

Said figure is constructed from user features, such as their behavior history, file age, balances, types of credits requested, and new requests. Hence, a score below 550 reflects poor management of previous loans, while one above 700 points is from someone with sound financial management and, consequently, will be a reliable borrower.

It should be noted that this score is dynamic, so it changes based on changes in credit usage. Next, I list a series of recommendations to achieve a better score and thus facilitate access to financing.

Choose the type of credit that best suits your project.

Whether you want to start a company, expand it or acquire machinery to improve your processes, you must choose the right type of credit. For example, paying with a card could overdraw it and generate a lot of interest, so a personal loan would be more suitable for large amounts, although the repayment period may belong.

Pay on time

Although it seems obvious, many people do not keep their financial obligations in order and accumulate debts by forgetting payment dates. This carelessness could be interpreted as a lack of liquidity that prevents the owner from complying promptly. Prevent this behavior from affecting your score and keep all your accounts current.

Take care of your ability to pay

Companies must also be evident in determining their payment capacity, since, if they allocate a significant part of their income to cover their debts and have occupied a large percentage of their lines of credit, it would seem that they do not have sufficient margin for new financing or that are very exposed to falling into default if any expense increases.

By aamritri

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