Your credit score is an important indicator of your financial health and should not be ignored. When you have credit, lenders can quickly see how responsible you are for the credit. Getting approved for additional loans or new lines of credit is much easier when your credit score is high. A better credit rating can help you get the best possible loan rate if you want to borrow money.

 

Why is good credit important?

Your ability to meet your financial obligations is reflected in your credit rating. Regarding financial institutions, your apparent responsibility is directly proportional to your credit rating. For example, a credit score of 850 is considered excellent according to the FICO model. What are the benefits of good credit? Solutions can be as simple as improving credit terms and streamlining the approval process. Most people save hundreds of thousands of dollars by maintaining good credit. People with good credit are entitled to lower interest rates on mortgages, car loans, and anything else that requires financing.

People with better credit are considered less risky borrowers, which means more banks are vying for their business and offering better rates, fees, and incentives to these people. On the other hand, people with poorer credit ratings are considered riskier consumers. As a result, there is less competition for business among lenders, and more companies can get away with charging high annual percentage rates (APR). So how can you improve your credit score?

Check your credit report

·Estimated time: 1-3 hours

Before upgrading your credit score, it's helpful to understand better what's working in your favor (or against it). Checking your credit history is an important step in the process. Obtain copies of your credit reports from the three major national credit bureaus -- and compare the results. The next step is to look at each piece and determine what factors help or hinder your overall rating.

A history of paying on time, small amounts on credit cards, a combination of multiple credit cards and legacy credit accounts, credit accounts, and very few new credit requests are all factors that can help improve your credit score. Some main factors contributing to a worsening credit score include late or missed payments, collections, excessive credit card balances, and judgment.

 

Get an overview of invoice payments

·Estimated time: 1-2 hours

More than 90% of leading financial institutions base their credit decisions on FICO scores. Five independent variables are responsible for determining them:

·Payment History (35%)

·Loan Utilization Ratio (30%)

·Account age for credit (15%)

·Loan Portfolio (10%)

·New loan applications (10%)

As you can see, your payment history is the most important factor in determining your creditworthiness. Therefore, it makes sense to keep settled debts in your files. Paying your bills responsibly and on time will work in your favor. So avoiding late payments at all costs is an easy strategy for improving your credit score.

Credit utilization target of 30% or less

The percentage of your available balance used at any given time is called your credit utilization ratio. After payment history, it is the second most important component in determining an individual's FICO score. Paying off your credit card bill in full at the end of each month is the fastest and easiest way to maintain a healthy credit utilization ratio. If this is only an occasional possibility, a good rule of thumb is to keep your outstanding balance at 30% or less of your total credit limit. From there, you can work to get that amount down to 10% or less, which is considered the best area to improve your credit score.

Maximize your benefits when your credit file is small

A thin credit file must contain more prior credit activity to calculate a credit score. An estimated 62 million people in the United States are affected by this problem. To his relief, there are strategies people can use to improve bad credit scores and boost their credit ratings.

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