If you are wanting to improve your credit score, it will not happen overnight. You can describe it as being like weight loss; you have to put in an effort to lose those unwanted pounds and it will take some time. Following are tips on what you need to do to build up your credit score.
What Is a Credit Score?
What kind of borrower are you? If you don’t know the meaning of a credit score, then it will be hard for you to understand why you should have a good credit score. A credit score is a tool that is used by lenders to determine whether you qualify for a loan from other creditors. If you have ever borrowed money then most likely you have a credit report. It contains the information which you supplied to creditors when you applied for a particular loan either in the form of a mortgage, credit card or service. A high credit score is desirable, as your line of credit determines how much money you can be lent, and at what interest rate.
A lender will use a specific mathematical model to determine your credit score through your borrowing history. Once your credit score is established, it will help you either get a loan or not. This is why you need to have a good credit score. Your credit score will also determine the interest rate that you will be charged.
What Are the Benefits of Having a Good Credit History?
Any financial advisor will tell you that if you have good credit you have a higher chance of having your loan approved. Here is a look at some other reasons why you should have a good credit score.
- More negotiating power
- Borrow higher limits on loans
- Better chances of having your home loan or rental approved
- Better car insurance rates
- You will feel right about a good credit score and even brag about it
Tips to Raise Your Credit Score
If you are looking to better your credit score then here are a few steps that will help you in your journey.
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Pay Your Bills on Time
Did you know that your payment history is one of the categories which creditors review to determine whether they will approve your loan? It might sound so obvious to tell you to pay your bills on time, but it accounts for 35% of your credit score.
For instance, if you are planning to make a big purchase such as buying a car, then you might be juggling to obtain the money. However, even the slightest delay in paying your bills, even if it is a few days, will hurt your credit score.
If you have trouble remembering the due date of paying some bills how about keeping it traditional by using a calendar. You can write down the dates of each payment. If you want to keep it digital, there are various phone apps that you can use. Once you start making payments on time, then you will begin to see your credit score improving.
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Keep Tabs on Your Credit Card Balances
How much credit do you have and how much are you using? This is a question which many people fail to answer yet it affects their credit score. A credit balance refers to the amount of money which you owe a credit company based on the number of purchases you have made which you have not paid.
If you are looking to raise your credit score, then it is best to make monthly payments and keep your credit balance at zero. If you delay paying it, then it increases your chances of falling further into debt.
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Do Not Open a New Credit Card Account
Keep your current credit account active until you can keep your balance at a minimum. If you keep opening credit accounts, then to creditors, it means that you are adding on more debt. In the long run, you might fall into more debt which will bring more financial problems as you try to pay them off.
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Pay off Your Debts by Determining the Amount of Income You Earn
Debt-to-Income Ratio(DTI) is a method which creditors use to determine the amount of debt you owe to the amount of income which you are earning. Thus they will measure your ability to repay debts in case they approve your loan.
DTI is determined by dividing your total recurring debts which includes mortgage, car insurance and credit cards by your monthly income. If you have a slow debt income, then your credit score will raise because it means that you can manage your debt repayment.
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