There is no doubt that maintaining a good credit score is one of the primary challenges of securing a loan. This is because your credit score determines how much credit you can access. Therefore, it is necessary to have a good credit score if you wish to get loans at favorable terms from banks and other lenders.
Given the immense importance of credit in today’s world, we cannot overemphasize the need to maintain a high credit score. A considerable number of people fund their housing, vehicle and education expenses using debt. As such, in this article, we will share some manageable ways to build and maintain a healthy credit score.
Let’s get right into it!
Pay your bills on time
Paying your bills late or inconsistently is one of the most significant contributors to a low credit score. Unfortunately, most people may not avoid this pitfall due to financial challenges resulting from the current plummeting economies in several regions globally due to the Covid 19 pandemic.
However, you must have the discipline to make payments on time since a single late payment can considerably impact your credit score. There are a number of measures you can take to help you make timely payments. For one, it helps if you are organized. Having a list of all the bills you must pay and when they are due can enable you to plan your finances. In addition, you can use apps to keep track of your payment amounts and integrate each bill’s payment date into your calendar so that you never miss them. You can also set up an automatic payment system.
Never max out your credit limit
Using credit until you’re close to your credit limit is common practice. However, this is a bad idea. A significant factor most lenders take into consideration when calculating your credit score is your credit utilization ratio. This is basically what proportion of your credit limit you have already used.
In essence, having a lower credit utilization is better than having a high score. So constantly aim to use a low percentage of your total credit limit. It is generally recommended to have a credit utilization of less than 30%. However, it might be even better to aim for 10%. If you are struggling to keep your credit utilization low, consider requesting an increase to your credit limit. If this is approved, your credit limit goes up, and the percentage of credit you are using automatically goes down.
Build a long and favorable credit history
Your credit history also contributes significantly to your credit score. This refers to how long you have been using credit as well as how creditworthy you have been. Thus, it is advisable to keep the oldest accounts you have open. Furthermore, ensure your credit history reflects creditworthiness.
A good credit history is one that shows that you have a history of using credit responsibly. This reflects your ability to take loans and pay them on time. In addition, information on your credit use could be retained for years, further reflecting its immense importance. If you currently have a low credit score, you can build your credit history by taking unsecured loans, such as a payday advance and paying them back on time.
Be conservative about applying for credit
Using credit may not be the only reason for your credit status. It can also be impacted when you apply for new credit. This is because lenders may use your recent credit activity as an indicator of your economic situation. Therefore, if you apply for too many credit lines within a short period, they could interpret your finances as being in a terrible state.
As such, it is advisable that you only apply for the credit that you absolutely need. In addition, there are two types of inquiries to your credit. First, there are soft inquiries that do not impact your credit score. This includes you checking your credit or an employer checking your credit. On the other hand, hard inquiries would adversely affect your credit score. An example of a hard inquiry is applying for a new credit card or a mortgage.
Final Thoughts
Your credit score is an essential tool that you can use to leverage debt to improve your financial situation smartly. However, it would only be of advantage to you if it is high. This is why it is vital to take steps, some of which we have shared in this article, to improve your credit score.