A good credit score will help you get your loans and credit card applications approved more easily, get the best credit terms, and enable you to pay lower auto insurance premiums, among many other benefits. You start the journey of building a good score by checking to know where you stand so that you can take the necessary steps.
Here are some tips to assist you with getting a good score and maintaining it:
Be up to date with your payments
You must stay on top of your obligations because this is an indicator to the lenders that you can handle credit responsibly. Payment history is the highest contributor to your credit score whether you are using Vantage Score or FICO, which are two of the most used scoring systems.
Timely payments show lenders that you can repay your debts effectively and that you can manage future obligations responsibly. You need to avoid late payments, defaults, third party collections, and other indications of irresponsibility at all costs when dealing with debts. You can avoid late payments by setting reminders or implementing automatic payments from your account.
Observe a healthy credit utilization ratio
Credit utilization ratio refers to the ratio of credit to the credit limit. If you have a credit limit of $1,000 and you have a credit card balance of $400, your utilization ratio is 40 percent. When using your credit cards, you need to avoid getting too close to the credit limit. The closer your card balances are to your limits, the poorer your credit score will be. To have and maintain a good credit score, your combined credit card balances should not exceed 30 percent of your combined credit limit. But if your score has plummeted, it may be due to maxing your credit limit or defaulting on payments, and if you want to restore the score, you can engage the services of credit repair experts. They will help to boost your score. You can check out more info on such services and how they work.
Avoid closing old credit cards
Did you know that your credit history accounts for 10 percent of your credit score? Well, those old credit accounts that show prompt payment and responsible handling of debt are better off left on your credit report to lengthen your credit history. Do not close them unless it is the best option.
Additionally, closing old credit cards cuts your available credit and could result in you having a higher utilization ratio, thus hurting your credit score. Take a case where you close a credit card whose limit was $1,000 and you had a combined credit limit of $5,000. You will henceforth have a combined limit of $4000, which is lower and you will be getting closer when you take credit.
Manage your debt burden
It is noteworthy that credit cards are not the only things that affect your score, but also lines of credit and loan balances. Too much debt can negatively affect your credit score. So, you need to keep your debts at the lowest amounts possible and your score will be high and will remain that way.
Other ways you can employ to get a good credit rating and keep it is by regularly checking your credit reports and disputing any errors since some of those mistakes could hurt your score. You also need to be careful while applying for new credit because too many applications in a short time can affect your score negatively.