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Every individual having a credit history will have a credit report that keeps changing with every financial year. Depending on various entries on the credit report, every individual is assigned credit scores, which form the basis of all major financial dealings. Credit report is essentially the credit score, which can be checked at any time, by paying a fee to the credit report bureau. Every one having credit history gets free copy of their credit reports once a year, and they can review the report and correct it if there are any mistakes on the report. It gives a chance to change some spending habits and amend budgets to suit the credit scores that the individual wishes to achieve.
Depending on the credit scores, there are three major zones which can categorize an individual's credit history. Excellent credit scores means good credit history, for which credit scores have to be around 700†, and bad credit history means the credit scores are lesser than 400†, and fair credit history, which is a safe zone, and credit scores around 500† to 600† comes under this category. For most financial commitments and dealings, fair credit report is enough most of the times. But the benefits that the good credit history holders receive are normally not extended to the fair credit report holders.
The credit history of fair credit report holders need not be filled with flaws. There may be one or two occurrences of late bill payments, or some irregularities in paying back the full loan amount. There are many other reasons for the credit report to slip into the fair credit zone, without even missing payments or skipping paying in full. If not taken care of, the credit history can get into the bad books, and it can take a long time to repair it. Below listed are some reasons for low credit scores:
- Applying for new credit cards is one reason for credit scores decreasing immediately. If the application for the new credit card is rejected, then the credit score takes an immediate hit. If the application is accepted, it remains unchanged, but applying for too many credit cards over a short period of time can lower the credit scores.
- Cancelling credit cards can also lead to low credit scores. Cancelling credit cards can lower the credit limit and can affect the credit scores when there is heavy spending.
- Shopping until the available credit limit is reached, can also lead to decreased credit scores. At any time, the total outstanding balance must be below 50% of the total available credit limit.