Hey guys, in this article, we will discuss Kredittkort: what affects credit scores? So keep reading.
So long as you have reached an age of independence, you should be familiar with the term “credit” and “credit cards”. You can also look at a credit card as a loan shark you carry around.
Why is that? Well, these cards enable us to borrow money we do not have with the intention of paying back later. The difference, however, between credit cards and loan sharks, is that no one would threaten you with physical violence if you default on payment. That said, however, there are penalties for defaulting.
What Is A Credit Card?
A credit card or kredittkort as it is called in the Norwegian language is an instrument that gives you a cash advance. The best part about it is you don’t need to pay it back until the end of the month. The amount of credit you’re allowed to take is totally dependent on your credit score. The higher your credit score the bigger your cash advance.
You could say that “credit” accurately evaluates a person’s ability to return borrowed funds. This is why we have a credit score. If you have a habit of repaying credit on time your score gets higher. This in turn puts you in a better position to handle higher credit.
It’s the same way for a defaulter. You are left with higher interest rates and other penalties. But the worst part of it is your history of defaulting is clear for all to see in your credit score. This puts you in a bad position should you wish to request money from a bank or buy a car with deferred payment.
What Could Affect Your Credit Score?
It is loosely agreed upon by many that your credit score is affected by five factors. We would discuss all five of them below:
What Affects Credit Scores?
An individual who pays an advance on time has a good payment history. And a good payment history can affect your credit score. In fact, FICO (Fair Isaac Corporation) says it accounts for 33% of your overall score. Now that’s a lot.
This is why you repaying an advance on time should be taken seriously. If you tend to be forgetful, you can set up alarms and reminders 2 days before your credit is due. It’s also best to discuss with your bank and loan officer the possibility of getting due dates that tally with your payday.
The amount of credit you utilize is crucial to your final score. In fact, it accounts for 30% of your total score according to FICO. With numbers like that, it is necessary you take this seriously.
You shouldn’t make use of the maximum amount you can take an advance on just because you can. In fact, it is recommended you should not use more than 30%. This keeps your total utilization level low. It’s alright if you wish to use more than 30%. Just ensure you make higher deposits when repaying, this balances it out.
Length Of Time
Customers who have run a credit account for longer periods are more trustworthy. Their history of taking and repaying advances vouch for them. This is why it is always good to cultivate long-term accounts. It accounts for 15% of your FICO score.
Performing well in different credit accounts contributes to your total score. You would often find individuals with impressive credit rankings running multiple credit accounts, such as mortgages, credit cards, loans, etc. Your ability to control multiple accounts efficiently is used to gauge how reliable you are. It accounts for 10% of your FICO score.
New credit is simply a line of credit or loan that you applied for which you didn’t have before. When you make a request for a new credit account, a hard inquiry is made to your score and this record can be seen by banks and other loan providers for up to two years.
If you’ve only been managing credit for a short time, it is advised that you stay away from opening new accounts too rapidly. This is because loan providers see opening too many credit accounts in short succession as irresponsible and that’s a red flag.
Why Should I Use A Credit Card?
- You get incentives: Every time you spend money with your card you are rewarded with a point. These can be used to perform a variety of purchases. Spending fiat currency won’t give you such benefits.
- It provides aid: For some people, getting through the month can be hard. A credit card gives you the added support you need to get through the month.
- Convenient: It is simply very convenient to be able to use borrowed money for other expenses. This frees up funds in your debit account for pressing needs.
- Builds credit: Credit is used to evaluate how much a consumer can be loaned. You would find this very useful in home and car purchases amongst others. Promptly making your monthly payment is an easy way to build credit.
By now, you should be familiar with how a credit card works. It can prove to be very useful to you, just make sure you have a structured plan in place for monthly payments. I hope you liked this article on what affects credit scores. Thanks for reading!.