A credit score aggregates an individual’s record of borrowing, and repaying over time. As such, it puts fingers deep into almost every aspect of our lives. Financial institutions and businesses trust what large credit bureaus Equifax and Transunion think. If you are curious, you can ask them what they hold on record about you. You are legally entitled to know this, because it is after all your information.
What Your Creditworthiness Means to You Personally
Your creditworthiness reflects how unlikely or likely you are to default on a financial agreement. Lenders willingly provide their experience of clients to these credit bureaus, based on the power of sharing. In return, they can access individual credit reports for a fee. These may be hundreds of pages long depending on the depth of credit history.
The system is somewhat heartless, because it reduces each individual’s creditworthiness to a three-digit number, and many companies have a blanket policy never to lend to anybody unless they have racked up at least a particular value. A typical scoring window has values between 300 and 850. If you are high up the ladder, you may qualify for a more beneficial deal.
How the Burden of Current Debt Drags the Value Down
Individuals in financial difficulty sometimes borrow as much as they can, to keep ahead of the debt collector. No business wants to become their tipping point at the end of the road. Hence having high credit balances decreases your perceived creditworthiness. Try not to use more than 30% of your allowance on your card or store account. Avoid having monthly repayments worth more than 25% of your net income.
The Power of Knowledge: How to Manage the Situation
Various websites offer to check your credit record score for free. Please be careful about the personal information you give away. Once you know your score, you may or may not need to take care of overdue payments and defaulted accounts. If you believe a company has reported unfairly on you, you have a right to appeal to the credit bureau.
Finally, Relating Creditworthiness and Real Estate
A poor credit record with a low credit score will stand in your way of obtaining a mortgage, in order to purchase a home so you need to repair it. You can start rebuilding with the help of a co-signer provided you can afford the repayments. If you have no other option, you could sell an asset you can afford to do without. Like the family holiday home for example, or the second car that has become a luxury since the kids moved out.