The term credit is synonymous with investments today. Every time you need to make an investment, you need to apply for a credit. Thos application will then be processed by a credit who will want to know your credit history. Checking your credit history will give the creditor a very clear idea about the kind of a person you are financially. This will help him gauge the risk factor and he will take a decision whether you should be given the credit or not. If in case you are approved for a loan, your credit history will decide the interest rates. Thus your credit history will help decide your future financially.
The credit score is a very useful figure which people use to denote your credit history. Credit scores are calculated by the agency FICO. There is a certain formula for calculation of the credit score with each area of your credit history being taken into account. A question that people often ask is how to improve the credit history and credit scores. This is obviously very important as every single credit and investment will be decided by the credit history and score. Credit repair is the process where one takes focused steps towards improving the credit score.
One very important account hat most people have and is very common is the credit card. This account is treated as a special account by FICO while calculating credit scores and plays a huge role in the calculation. Many people do not know how the closure of the credit card will affect their credit scores. Closing credit scores can work both in the positive and negative ways.
Closing credit card accounts does not always mean positive effects. One very important factor is the debt to credit ratio. People might believe that as they are eliminating debt and the ratio and hence, the score should increase as well. However, this is not the case. When you close the credit card the amount of credit available to you will decrease drastically while the decrease in the debt is not as bad. This will lead to an increase in the debt to credit ratio.
People might think that the opposite must work. A person who does not have too many credit cards might get a good score by applying for more credit card accounts. This is true. A person with less number of credit cards can get a few more credit cards as this will increase the total credit available to the person. Another important feature of canceling credit cards is the decrease in the length of credit history. The length of credit history plays a huge role. It accounts for fifteen percent of your credit score. Thus, closing credit cards might result in short length of credit history which in turn will affect your credit score.
Instead of closing credit cards that you rarely use, try to rotate the usage on all the cards. Credit cards that have been ignored might not show up on your credit history. Instead if you have three cards and use these three cards in turn, the zero balance will show up on two cards decreasing your debt to credit ratio and will help your score greatly.
