It's important to be aware of what criteria are used to determine your credit score and how much weight each carries.
No matter how much cash you’ve got, the worst thing you can do is neglect your credit cards. Young professionals in particular should use their credit cards to build and strengthen their credit scores, which can make the difference between being approved for or denied a loan.
Unless you understand how your credit score is determined—it’s about more than just making timely payments—you might be unwittingly sabotaging it. You should check your score annually—and under the Fair and Accurate Credit Transaction Act, everyone is entitled to 1 free credit report per year from 1 of the 3 major reporting agencies: Equifax, Experian, and TransUnion.
According to Jon C. Ylinen, a financial advisor with North Star Resource Group, it’s important for consumers to understand what criteria are used to determine a credit score and how much weight each carries. Your credit score is calculated as follows:
Based on how your credit score is calculated, you should never cancel an old credit card. Even if you’re no longer using it, if you’ve had a credit card for a long time you’ll be better off tossing it in a drawer than closing it. Canceling the card will most likely reduce your credit score by increasing your credit utilization ratio and lowering the average age of your accounts.
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