Understanding How Your Credit Record Works
Your credit record is a very important number that lenders use to decide whether to grant you credit or not, and what interest rate and terms of credit or loan you will receive. The lower your score, the less likely you are to be approved for loans. If you are approved, you may have to pay a higher interest rate. For this reason, it is very important to have the highest possible score if you plan to open a credit card, obtain a personal loan or car loan, or apply for a mortgage.
Making Payments on Time
The most important thing you can do to keep your credit score high or improve it is to make payments on time. Payment history is the biggest factor used to determine your credit score. Payments that are 30 days or more late will appear on your credit report and negatively affect your score. These negative marks typically stay on your report for seven years.
Keeping Your Total Debt Load Under Control
With the second largest factor in your credit score being the total amount owed, it’s important to keep your borrowing under control. If you currently have a large amount of outstanding debt, your priority should be to stop borrowing and focus on paying down the balance.
This may not always be easy, but the only way to improve your debt situation is to stop borrowing or using credit cards and continue making on-time payments that reduce your balance.
Additionally, you should consider how much available credit you have. For example, if you have several credit cards that are maxed out or very close to their limits, this will negatively impact your credit score. Having two credit cards with a $5,000 limit and a $1,000 balance on each will look much better than one card with a $2,500 limit and a $2,000 balance.
Keeping Old Accounts Open
The length of your credit history is another important factor in your credit score, so it can be beneficial to keep old accounts open and in good standing. While you want to keep the total number of accounts manageable, sometimes closing an older account can affect your score more negatively than keeping it open, even if it means you have more accounts open. Closing an old account when you still have a remaining balance can also negatively impact your credit score because it directly affects your credit utilization.
Using Different Types of Credit
A smaller part of your score depends on the types of credit you are utilizing at any given time. Lenders like to see that you can be responsible with revolving credit, which means credit cards, as well as loans. If you don’t have a credit card yet, you may want to consider opening one. And if you don’t have any loans on your credit report, you could take out a small personal loan to help build credit.
Be Cautious When Opening New Accounts
Although new credit is the least important factor in your score, it’s still an important matter to consider. When you are seeking a new loan or credit card, try to shop around in a relatively short time frame. You don’t want your report to show that you are constantly seeking credit.
Also, you don’t want to open credit accounts that you do not intend to use. It might be tempting to get an additional 10% discount when opening a new store card, but the little money you save may be trivial when opening multiple new accounts like this lowers your credit score. Additionally, store cards often carry higher annual percentage rates compared to traditional credit cards. If you do not pay off the balance promptly, the higher APR could negate any savings you made by opening the account.
Source:
https://www.thebalancemoney.com/ways-to-improve-your-credit-score-1289631
Leave a Reply