Are you planning to splurge and indulge in several discount offers this holiday season? A viral TikTok video explained why you shouldn’t spend all you have on your instant approval credit card
Credit Card Score Calculator
Instant approval credit card for those who do not know, the credit card score, often referred to as the FICO score, was developed by the FICO company, by Investopedia.
Said company is a data analysis company previously recognized as Fair Isaac Corporation.
Lenders use borrowers ‘FICO scores, as well as other characteristics of borrowers’ credit card records, to assess credit risk and determine whether to grant loans.
Additionally, it should be noted that the FICO is not the only type of credit score available, but it is one of the most used by lenders to assess the risk of doing business with a borrower.
In case you’re curious about how your credit card score was calculated, there are several factors that FICO scores take into consideration in determining reliability.
Said factor includes payment history, current credit amount, types of credit used, length of credit history and new credit accounts.
Payment history determines whether you’ve paid your credit cards on time and on a regular basis. Apart from this, past bankruptcies, collections and defaults are also taken into account.
Regarding its percentage, Investopedia said it affects 35% of credit card score. It only means that the credit card score will likely be lowered if you have a bad credit payment history.
Current loan amount
Meanwhile, the second most important factor is how much you currently owe the business against the credit you have.
Borrowers who consistently spend up to or over their credit card limit are considered risky by credit score formulas.
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While this section of your credit score focuses on your current debt, it also takes into account the number of accounts you have opened and the types of accounts you have. It only means that a large aggregate amount of debt from various sources will lower your credit score.
Credit history period
To clarify the length of credit history, Investopedia explained that the more active and in good condition credit accounts you have, the better.
For example, someone who hasn’t missed a payment for 20 years is a better example than someone who has paid on time for two years.
Latest credit accounts
In addition, people who apply for credit frequently are more likely to experience financial stress. It only means that every time you apply for credit, your credit card score goes down.
Before opening a new credit account, consider whether the additional credit is worth reducing your credit score.
Mixed Credits Organized
For a detailed explanation, lenders like to see a well-balanced credit profile that demonstrates your ability to handle multiple forms of credit.
Simple tip to prevent your credit card score from dropping
Viral TikTok user Erika Kullberg shared a simple tip for everyone to keep credit card scores from dropping.
In her TikTok video, she said that a low credit card score would likely affect several factors such as buying a new home or getting a loan.
However, to prevent this from happening, she advised people to spend only 30% or less of their credit card limit. This process is called the credit utilization rate.
Kullberg showed that for every $ 1,000 credit card limit, you should only spend $ 300 or less. If you spend more than said percentage, your credit card score will start to go down.
Apart from FICO and this tip, an online credit card score calculator will be helpful in learning more about your finances.
@erikakullberg How to properly use your credit card #personalfinance #moneytok #creditcard â¬ original sound – Money Lawyer Erika
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