Expert Tips to Maintaining, Repairing and Improving Your Credit Rating
Is a good credit history really a big issue? Yes, it is imperative. A good credit could be compared to your personal and professional reputation. It may take several years to cultivate, but it can easily get damaged. Think of the number of times you developed an interest in getting a car loan, home loan or any other project. Do you think any bank or lender would approve any of your application with a poor credit history? The lenders will always refer to your credit score, employers after a job application and even landlord before they let you to their home. All those highlight the importance of maintaining a healthy credit score.
The Determination of Credit Score
myFICO is the company involved in the determination of credit scores. The company itself developed the mechanism for calculation of credit scores. A predetermined mathematical is used in calculating the credit rating. They will evaluate all the information recorded on the credit report and determine your credit score. Who qualifies for a FICO score? Anybody is qualified for the score provided you have an open account. The account should have been in existence for six months. To come up with your score, they check the following:
- Amount owned contributes up to 30% of the FICO score. They will consider any outstanding debts for the last 30 days.
- Payment history. It contributes up to 35% to the credit score. Consistency in the payment of the monthly bills will ensure that your rating remains high.
- The length of time you have been operating your credit account. Don’t open several accounts if you are a new user. The age of the account will be affected, and this will have a significant impact on your credit score.
- Any case leveled against you due to criminal activities or even bankruptcy. It lowers the credit score.
Why is the credit score necessary? A financial institution will only refer to your rating to decide whether to give or deny you a loan. The credit score also impacts the interest rate the bank charges you. If you score highly, you benefit a lower interest on your loan and credit. Again, the amount on credit cards i.e. the credit limit will depend on your credit rating. No financial institution wishes to risk with defaulters. Be sure to check your credit report from the credit bureaus. You can choose any credit bureau among these major three bureaus:
- Trans Union
They give a fee credit report once a year. The trio has a common portal at AnnualCreditReport.com where you can order your free credit report. You should report any discrepancies to your creditor if there are any. That is the primary goal of this report.
How to Maintain and Improve a Good Credit History
Maintaining an excellent credit rating has proven hard to many, but it is very simple. The following are the expert tips to help you keep a splendid credit score:
Reduce Your Borrowing: Every time you apply for a loan or credit, your score goes down by 10 points. Make sure that you only apply for credit when it is necessary. If you think you will not need to use a particular, inform the creditors to close as they are categorized as debts. But do not close those cards that you will require in future. It is better to have accounts that have been in existence for long than new. Lenders prefer cards that have been in use for some time, say six months.
Keep Track of Your Spending: You need to learn how to spend wisely. Give a closer look at the checks you’ve written, the transactions you have done with the credit card, and the ATM Cards. Ensure you only spend what you can afford to pay quickly. Tracking may help you identify some of the instances you spent a lot than needed. You may also note disputes that require reporting. Get an overview of the monthly transactions.
Don’t exceed the Credit Card Limit: Most people find themselves tempted to go beyond their credit limit without the knowledge that they will have to repay. The golden rule is to make sure that you do not go beyond your yearly income in a year after tax. If fact, a wise spender would not go beyond 50% of the credit limit.
Pay your Bills Consistently: To maintain a good credit history, ensure that you clear all the monthly bills on time. The bills include; electricity, doctor, phone, loan installments, and more. A good strategy is to ensure that you always commit extra amount beyond the minimum to cater for the time that you are short of cash. Late payments or non-payment may deny you a mortgage loan when you go applying. Refrain from spending what you are not sure you will manage to pay in time.
Avoid Criminal offenses and Bankruptcy: Do you wish to keep your records clean? Then, avoid being arrested for crimes that you could avoid. Being declared bankrupt also affects your score. The assumption is that you may default on payment once more.
Establish an Emergency Fund: An emergency fund is paramount to cushion yourself against unexpected outcomes. From your savings, commit some cash and open a savings account for the money. Ensure that the account is not readily available due to temptations. The move enables you to avoid more borrowing when very urgent needs arise.
Do not Borrow What you Cannot Afford to Pay after Certain Duration: This minimizes chances of default and hurting your credit score.
Maintain Your Residency: Unless in unavoidable circumstances, staying at a place for an extended period implies how stable you are. Continuous movements will most likely scare away lender as you seem never settled. Those who are always moving have a high likelihood of defaulting on payments.
Maintain Your Job: Another thing that implies instability is switching from one job to the other. Your credit score goes down too. To the lenders, it is also a sign that you could easily default.
How to Repair Your Credit Score
Probably your credit rating has been severely damaged after committing a series of blunders. According to myFICO, there is no straightforward and quick way to fix a bad credit score. To rebuild it, you need to manage it as responsibly as possible overtime. The company warns against misleading advice that somebody can help you achieve a perfect credit rating fast.
To fix your rating:
To repair your credit score, first, check your credit report with any trusted credit bureaus. The report comes free of charge and yearly as pointed out. Check it keenly to see if you can spot any errors in calculating the score. You may find that they have included late payments, which you do not have or are more than required. Also, confirm if the amount owed to each of the open accounts is the correct figure. In case you find conflicting information, you should immediately report it to the credit bureaus.
A loan is an obligation and has to be cleared no matter the circumstance. You need to come up with a plan on how to pay your loan. That calls for a payment reminder. Check if your banks could help you by sending you notifications reminding you that payment date is due. The credit card providers and the lenders of the loan could also make automatic deduction upon agreement. That is a good way to ensure that you do not feel the effect of having to pay. However, it does not help you learn the money management skills.
You need to reduce the debts by coming up with a payment plan. By using the credit report, you can easily create a list of all the accounts that you owe and the interest rate charged. Check online for statements to calculate how much you owe each of the open accounts. You should also check the interest rate for the credit or loan. Once you have identified the account with the highest interest rate, you need to give priority to it. By first paying the debt on the account attracting high interest, you minimize the chances whereby the money adds up at an alarming rate. At the same time, ensure that you allocate minimum payments to each of the other accounts. After looking at the main tips of fixing a bad credit score, the following 2 are bonus tips to help you improve your credit score.
Increase Your Credit Limit
You probably are not in a position to pay down the balances. You use another strategy that involves improving the credit utilization rate. This means approaching your creditor and requesting for a limit credit increment. The aim of this is to cut the credit utilization rate. But this requires discipline. Be sure not to peg your expenses on the increment. The credit score will increase because you will be spending way below the limit.
Make Double Payments
To elevate your credit score, consider twice a month. The creditors report balances to the credit bureaus on a monthly basis. With a large balance each month, the assumption is that you have exceeded the credit limit. Suppose you have a card with a credit limit of $2000. If you spend $2000 every month and also manage to repay but once, the utilization rate stands at 100%. The report will always indicate that you have a debt lowering your credit rating.
Now, you know why a good credit history is essential. In fact, there is virtually nothing you can do with a mediocre score. A bad credit score means no more using of credit cards, getting a mortgage or a car loan becomes a nightmare. You do not want to experience that. The tips above will come in handy at fixing, maintaining, and improving your reputation with you lenders.