How You Affect Your Credit Score
Your credit score is made up of many facets, and you can think of it like a pie or pie chart. Things such as paying what bills and credit you have now in a timely manner makes up a large percentage of your score, or a larger slice of the pie. The types of credit or loans you have also makes up a portion of this credit pie. Another aspect can be the number of inquiries or “footprints” that are on your credit report.
An inquiry or footprint is when a bank or lender looks at your credit report, such as when you make an application for a loan or credit card. That company or bank pulls a copy of your credit report to see how you have paid past loans and debts and also to verify the information you have provided to them. When a lender looks at your credit report it shows their name and creditor ID in the inquiry section of the credit report.
Having too many inquiries in a short period of time, or too many inquires period can bring down your credit score, which in turn can cost you money.
I’ll give you an example:
You’re out shopping one day and have been looking for a certain piece of furniture for your home. You find the perfect item you have been searching for at a local store and in taking the purchase to the till the clerk there asks if you would like to apply for their store credit card and if you do so you will receive a 10% discount off your purchase today.
The piece of furniture you are looking to buy costs £300, so a 10% discount saves you £30, which is pretty good savings, so being the savvy shopper you are, you complete the application for the credit card and save the £30 or 10% off your purchase and walk away feeling pretty good with yourself.
This application is then reviewed by the stores credit department who in turn pull a copy of your credit report and in doing so place an inquiry on your credit. This inquiry along with others you may have now has affected your credit score by lowering your score by a certain number of points.
You then later in time you are looking to obtain a mortgage with your partner or spouse and in applying for a mortgage the bank or mortgage company looks at your credit report and credit score. By having your credit score be reduced by the number of inquires, you no longer qualify for the lower interest rate on your mortgage and are given an interest rate that may even be just one (1%) or two (2%) percent above what you could have received, which in turns costs you more in interest on the mortgage, which calculated for the next 20 or more years is costing you thousands of pounds; all due to your saving £30 off that furniture you bought.
An extreme, but realistic example of needing to be aware of what comprises our credit score.
More examples and slices of our credit pie to discuss in future ramblings.
Author Bio:
The author Jon Emge is the Web Content Manager and Senior Advisor for My Money LTD and also writes articles and blogs for www.lifequoes4u.co.uk.
He has over 25 years experience in the field of personal finance in both the USA and UK, of which 17 years has been providing debt and bankruptcy advice.
Category: Credit Score
