What Your Credit Score Says About Your Spending Habits
A credit score tells a tale about your financial trustworthiness. Credit scores rank individuals based on their ability to handle borrowing and repay debt. A numerical score ranks your credit worthiness from “excellent” down to “bad.” The scores serve a vital purpose. Potential lenders see green, yellow, and red flags when reviewing people’s credit scores.
A profile about your ability to repay debt, however, isn’t the only thing revealed via a credit score and accompanying report. A picture of your spending habits emerges. A small amount of analysis of a credit score and report reveals a lot about how you spend and manage your funds.
Heavy Debt Reflects Out-of-Control Spending
A person with five charge cards and a line of credit associated with a checking account has access to a lot of revolving credit. Perhaps the borrowing threshold totals $45,000. If the available credit remaining on the is $3,000, that person is spending and borrowing a huge amount of money. Sad to say, a person with $42,000 in amassed debt and $3,000 in available credit doesn’t come off well. The profile appears as if you are not responsible in your spending habits, which may not be completely true.
People do borrow for good reasons. Being laid off from a job or suffering from an emergency financial crisis such as a long hospital stay without insurance could lead to heavy borrowing. Unfortunately, the credit score only reflects statistical data and does not tell the whole story.
Late Payments Undermine Appearing Responsible
Consistently paying bills late leads to bad marks on a credit score. A series of missed payments does not exactly paint a positive fiscal picture of someone. Defaulting on loan or other financial obligations could be even worse. Questions may arise regarding what you are spending your money one. Have your prioritized your spending properly to pay off your obligations? Again, a complete picture isn’t painted about the reasons for the late payments. Fair or not, the reason becomes immaterial to the profile the late payments create.
Always Looking to Borrow
Constantly applying for new credit cards or loan accounts contributes a negative mark on a credit. While the impact is small, the negative impact exists nonetheless. Someone who keeps seeking new credit cards and consistently uses those cards may be someone a bit too reliant on borrowing to cover expenses. This raises questions about the person’s overall fiscal health.
The Positive Side of a Credit Score
When you keep your credit card balances low, you pay everything on time, and aren’t always looking for new lines of credit, the credit score isn’t exactly reflecting a lot of bad information. Simply put, a great credit score can say a lot of great things about you. So, work on making a credit score always look solid.