Top 5 Factors That Make Or Break Your Credit Score

credit score factorsEverybody knows that having good credit is important. However, statistics shows that in reality a pretty small percentage of population has a credit score of 750 and above. Let’s take a look at what makes up this mystical credit score that is a somewhat elusive entity but makes so much difference in everybody’s lives.

Your credit score, which is a reflection of your credit history, is made up of a number of factors. Here are the most important ones:
1. On-time payments
2. Capacity used
3. Length of credit history
4. Types of credit used
5. Past credit applications

These five factors are here listed from most to least important. So let’s briefly go over each one.

The most important factor is your history of payments and specifically your on-time payments. This is basic common sense – it’s important to make on-time payments and if you do, that will influence your credit score favorably. Vice versa, if you are often late on your payments then you credit score will suffer and it will drop. And the more late payments you make, the worse it is for your score. It can often take months and sometimes years to recover from late payments. On your credit report, these are usually classified by 30 days, 60 days, 90 days, and over 120 days late. It’s important to do everything in your power to avoid getting such hits.

Let’s take a look at the capacity used factor. This basically means the ratio between your available credit and how much credit you have used. If you have $10,000 available on credit cards then you want to keep an active balance of as low of an amount as possible. Why? If you have a $10,000 credit limit and you constantly carry a balance of $9500 then any lender that looks at your credit will see that your credit is almost fully exhausted. This does not make you a good customer for new credit lines. However, if out of the $10,000 available to you, you carry a balance of only $1000 or even $2000 then that’s only 10 to 20% of your capacity, which is a pretty good ratio. This can positively influence your credit score.

The third factor┬áthat influences your credit is the length of credit history. The longer of the credit history you can show, the better. This shows to potential lenders that you have been established as a financial consumer in the marketplace and it allows them to go back in time and see how you have performed for other lenders. If you are brand-new and you have no credit history or if it’s very short then they have little information to base credit decisions on. This makes you more of a risk factor for them to loan money to you.

The next factor is the types of credit used. It’s good to have different types of credit showing on your credit report because it shows your finances as being diversified. It’s not good to have too many open credit lines and especially credit cards but it is important to have some. In fact, even if you don’t want or need to use credit cards, it’s still good to have somimprove credite open and use them anyway. If you don’t need the money then you still want to use your cards and pay them off at the end of the month. This builds up your credit history and shows potential lenders that you are responsible borrower.

The final aspect is your past credit applications. You don’t want to have too many applications showing up in your credit history, especially over a short period of time. If you do, it suggests to potential lenders that you are constantly looking for more credit which may suggest that you may have financial problems.

Hopefully this information and suggestions will make you understand your credit score better and help you make better decisions with your money. And if you do, this can help to improve your credit score which may influence all areas of your financial life.

3 Reasons To Use Payday Loans and How They Compare to Other Loans

I would like to talk about payday loans for minute. I’m sure you have heard of them as they are one of the most popular funding methods these days. But people are saying all sorts of different things about them – some good and some bad. And I suppose there is merit to both because it depends on each individual’s situation and what they need the money for. I am convinced that payday loans are not the perfect solution for everyone. Are they for you? Well, it depends. But let’s take a look at the pros and therefore several reasons to actually use such services.

direct payday lenders no third partyTop 3 Reasons To Use Payday Loans

1. Very fast approval and funding
The first reason to like payday loans is that companies that offer them provide very fast approval and funding. Again, everybody’s situation is different but a lot of the time people need money right away. If that’s the case, payday loans might be the answer. Traditional loans like what you would get from a bank can take a long time to not only apply for but to wait for an answer. An answer doesn’t even mean that you will be approved. Days might go by and you will find out you were denied financing. That means time was wasted and you still don’t have the money you need. On the other hand, with payday loans (of course, as long as you are using a reputable company) and especially direct payday lenders no third party companies, you can apply within minutes and get approved right away. Most of these lenders will give you an answer within seconds or minutes.

Here’s my personal example. I like to travel a lot so if I suddenly have a shortage of money and I know that I just need some extra cash to take care of something, I can rely on payday loans to help me with that. At the same time I know this is only a short-term solution and perfectly okay with that. It’s all about the convenience and these loans definitely provide that.

2. Easy to get approved
Compared to other types of financing, it’s easy for most people to get approved for payday loans. Sure there are certain requirements that an applicant must meet. But these are minimal and are no big deal for most people. By definition, the most important thing that these companies are looking for is that the applicant is employed and is getting a steady income. They’re not credit based which eliminates a lot of headaches for people with poor credit. Again, you want to make sure you’re utilizing services of one of the direct payday lenders and as long as you are, the process of securing financing should be very straightforward and easy.

3. Short-term financing
Another reason is that payday loans are designed as short-term financing. And when you work with direct payday lenders no third party companies, they will explain this to you when you will be finalizing your application. Some people might view this as a disadvantage but in many cases this is actually a good thing. When you take out such a loan, you will know that is going to be due within a short period of time (usually 1-4 weeks) and you will be compelled to pay it off as soon as possible. This is like having a deadline in college. Unless there is a deadline, people tend to procrastinate and put things off. When there is a short deadline, you will push yourself to meet it otherwise you know there can be consequences such as late payment fees. And once you pay off the loan, you don’t have that extra liability hanging over you.