Not many people like taking tests. But a simple credit test provided by Freedom Financial Network can actually save you money. Try their short two question credit test below to see how you fare. Be sure to also read the answer details, which can save you money through proper use of your credit.
What is the most important factor in your credit score?
A. How long you’ve been at your job
B. On-time payments
C. Whether you are employed or not
D. How many accounts you’ve recently closed
Answer: B. Making your payments on time is by far the largest weighting in your credit score. It accounts for 35% of your score. This is also called your payment history. Missing a single payment can result in a bad mark on your credit that can remain there for seven years.
Included in this 35% area are any delinquencies and public records that indicate jail time, liens, bankruptcies, foreclosures, and civil judgements.
Length of employment at your current job is only part of the overall picture used by lenders to decide if you are a risk or not. Having gaps of unemployment or changing jobs many times can weigh on a lender’s decision to grant you credit.
Freedom Financial Network says most people are surprised to hear that whether they have a job or not doesn’t directly impact their credit score.
Closing a single account may or may not negatively affect your credit. Although, there’s a broader picture to consider when it comes to closing accounts.
Calculating the total amount of credit you have versus your total debt lets you figure out your credit utilization. To do this, divide total debt by total credit.
For example, if your total credit is $60,000 and your total debt is $20,000. $20,000/$60,000 = .33%. Meaning, you are utilizing 33% of your total credit.
If you were to close an account that had $15,000 credit, this would reduce your total credit to $45,000, changing your debt to credit ratio. At that point, the new number becomes $20,000/$45,000 = 44% utilization.
Depending on other factors, Freedom Financial Network notes that 44% credit utilization might very well be enough that creditors and lenders begin seeing you as a risk and thus start denying you credit.
What Is Most Important When Applying For A Loan?
A. Monthly payment amount
B. Interest rate
C. Loan terms
D. Is the loan tax-deductible?
Answer. A. Lenders will want to know you can make monthly payments. They will factor in your income, current debt load and living expenses along with a few other items from your credit report. This helps paint a picture of your current financial health.
While knowing the interest rate is important, knowing the APR (annual percentage rate) is even more important. APR factors in all costs associated with the loan, whereas interest rate does not.
You should certainly know how long you have to repay a loan and if there is a prepayment penalty. But this isn’t as important as your ability to make the payments.
Most loans aren’t going to be tax-deductible.
Are your credit card payments becoming unmanageable? Freedom Financial Network can help you get your credit card debt under control. Visit them at freedomfinancialnetwork.com to learn more about their company Freedom Debt Relief, which offers free debt evaluations.