The most common type of credit availed by an individual nowadays, is through a credit card. The credit card is a mean of facilitating an individual to purchase goods and services on credit. It is a plastic card issued by a bank and credit card companies. An important factor to keep in mind, when you are a credit card holder, is to use it effectively and make timely payments because it will determine how good your credit standing is and how efficient you are. A method that is used to evaluate a creditworthiness of a credit card holder is credit scoring.
Credit scoring is an indication of a good and trusted system. In this process, a credit score is assigned to a credit card holder. It is a numerical value based on the statistical analysis of a person’s credit history and represents the creditworthiness of that person. Financial institutions like banks and credit card companies evaluate the risk of lending money with the help of credit card score. The credit score is a mode of determining who qualifies for a loan, at what limit, and at what rate of interest. Your Personal Financial Mentor guides you to use your credit card efficiently to improve your credit score.
A consumer or credit card holder who has improved and good credit score based on his or her performance history of making quick payments of their credit card debt are likely to get better and low rates as compared to the one whose scoring is relatively poor. For example, an individual who pays his debt relatively quickly are usually offered zero or minimal interest rates. It eventually minimizes an interest cost. But it is important to be efficient in making due payments on or before the due time because if you delay one single payment, your card will revert to a higher rate immediately. This is because of the continuous credit scoring process. Therefore, in order to avail the benefit of a high credit score, credit cards should be used wisely.
There are hundreds and thousands of credit card holders who have lack of knowledge about the scores and are unable to take advantage by not improving their credit score. Low scores increase the cost of the good and services you purchase via credit cards and limit your access to different products. Similarly many of the individuals have misconceptions about their evaluation of scores. They believe that it is based on their marital status or it has something to do with their age. But neither of these aspects contributes to their credit scoring.
To maintain a high rating, it is vital for a credit card holder to keep their balances low. Therefore, one should always keep track of his or her credit standing, as their rating will have a huge impact on their future spending than they have imagined.