Your credit score affects your ability to borrow money from the bank and other creditors. A good score means you can easily borrow money for a mortgage, car loan, or credit cards. It also means you’ll get a nice low interest rate, so you’ll pay back less money. The reason for this is that you’ve proven yourself a good money manager. A good credit score means you’ve handled debt responsibly in the past, and always paid on time. Your new lender knows that there is less risk involved when lending money to you. For that, you’re rewarded.
On the other hand, a poor credit rating will restrict your ability to borrow money. A bad credit score means that you have struggled with lending in the past. That’s a red flag for future lenders. It means that loaning you money may come with some risk. As a result, you may be turned down for certain loans and credit cards. If you are accepted for a loan, the interest rate will often be sky high. If you’re looking to buy a house or a new car, this poor credit score might hold you back. So, how do you make sure your credit rating is healthy and secure. Here are the best ways to maintain a positive rating.
Understand your current score
The first thing to do is understand where you’re currently at when it comes to your credit rating. Where do you fall according to current activity? You can find this out by using any of the major credit agencies. They’ll run a check, and let you know how you current rating weighs up. It’s always good to know where you stand before applying for credit, so you can hold a reliable position. (Just be careful of scams and sneaky free trials.)
Understand how your score is calculated
If you want to keep your rating at a healthy level, you need to know the factors involved. Once you know what factors affect your credit rating, you know how to avoid the pitfalls. There are four main aspects that are taken into account. Number one: your payment history. That’s how often you pay your bills on time. Number two: your level of debt. What is the total cumulative figure of your mortgage, car loans, overdrafts, credit cards, and any personal loans? Number three: mix of credit. That’s how many different types of loans you are currently paying. Number four: recent credit. Lenders are looking to see if you’ve recently borrowed a large sum of money. More importantly, they want to know how you’re managing it.
Pay your bills on time
As you can see, your payment history is the single most important factor in determining credit. Lenders want to know that you can pay your bills in a timely fashion. If you have a good, reliable history, banks will be more than happy to lend to you. That means paying each and every one of your bills on time. This generally refers to rent payments, mortgages, credit card and loan payment bills. Utilities will also have a small impact.
Avoid charge offs and black marks
In some cases, you’ll get a specific black mark if you are bankrupt or if you are charged off. What does charged off mean? Well, quite simply, it means that your credit card company has written your debt off as a loss. They have decided that you can’t (or won’t) pay the remaining balance. But, that doesn’t mean the debt is gone. It’s passed onto debt collection agencies, and you get a ‘charged off’ mark’ on your credit score. This will make it very hard to borrow money in the future.
Keep credit card balances low
It’s oh-so-easy to spend money on your credit card. In fact, it’s now easier than ever. But just be careful. Every time you spend money on your card, that balance must eventually be paid. If your balance is going up faster than it’s coming down, your credit score will begin to look suspicious. Always pay off more than the minimum payment, and prove to debtors that you are realistic about your credit cards.
Limit your applications for credit
Every time you apply for a loan or credit, the transaction is added to your credit score. If you routinely apply for credit cards and loans, these will quickly add up. Numerous refusals for credit will quickly show debtors that you are a high-risk client. It’s crucial that you only apply for credit when you absolutely have to.
With these essential words of wisdom, you’ll slowly clean up your credit score for the future!