I’m sure that you have heard that having a good credit score makes it easier to get that desired instant approval loans need cash today type of credit that we frequently feel that we need, and guarantees a good interest rate as well. There is no doubt that credit scores are important, but what exactly do they mean and how can you raise your credit score?
Financial circles often refer to a credit score as a FICO ® score as one of the most popular credit scores available. There is a three-digit number, between 300 and 850, that is used to provide lenders and other financial institutions with an overview of your credit history. Generally, the higher your credit score is, the stronger your credit will be and the more options you will have available to you when you go to borrow money.
It’s important to keep in mind that the criteria for determining each person’s credit score depend on the agency that calculates the score. As a result, you may have a slightly different score from one credit agency to another. However, most financial professionals agree that this is a calculation that is based on factors such as your payment history, the amount (and types) of credit you have, and the amount of time you have used credit.
It is very helpful to understand what goes into calculating your credit score so that you are able to improve it. You can achieve (or maintain) a very good credit score that is attractive to lenders by following these five tips.
To establish excellent credit, you need to make all your payments on time; after all, lenders want to see that you have a history of paying what you owe when you owe it. Ensure that you pay all of your loans and bills when they are due, and that you make at least the minimum payments on your credit cards on a monthly basis.
By keeping track of your due dates on a calendar, you will be able to stay on top of your payments. You may also want to consider setting up automatic bill payments with your financial institution if you want to ensure that you never miss a payment again.
An important part of your credit score is determined by the status of your debt-to-credit limit ratio—that is, how much credit you can access compared to how much you actually use. As an example, if you have a $300 balance on a credit card with a $1,000 limit, you would have a 30% debt to limit ratio on the card if you had a $300 balance.
You will need to consider your relationship across all of your credit accounts if you have multiple credit accounts. I would like to give you an example in which you have a credit card with a limit of $1,000 and a balance of $300, as well as a credit card with a limit of $500 and no balance. Your credit limit actually amounts to $1,500, which is spread across two cards, so you would have a debt to credit limit ratio of 20% if you had two credit cards.
In order to maintain a very good credit score, you should try to keep your overall debt-to-credit limit ratio below 30%. It is also important to avoid maxing out your credit cards, as this indicates that you are under financial stress.
Do you want to know what one of the most serious mistakes you can make after you have paid off your debt is? You should close your oldest account as soon as possible. Because of the fact that the length of your credit history plays a big part in your credit score, the older your credit accounts are, the better your credit score is going to be. As a result of closing your oldest account, your credit history will appear shorter than it really is, which will lower your credit score. It is important to keep your financial goals in mind: If it makes sense to do so, keep your oldest account open and in good standing so that it will continue to help your credit score in the future.
Be selective when borrowing money and shop around before you begin borrowing money if you want to do so. As soon as you apply for new credit, potential lenders do what’s known as a “major inquiry,” which means they gather your credit information for the purpose of reviewing your application for new credit. Your credit score could be affected briefly every time this happens – One or two inquiries may not have a significant impact on your score, but several inquiries in a short period of time can have a significant impact on your score for up to a year.
As a side note, if you’re worried about other credit checks, such as when you sign up for a new utility or request a copy of your credit report, you do not have to worry about your score. It’s called a “flexible inquiry” and it doesn’t affect your credit score in any way.
Ordering your credit report is a great way to keep an eye on your credit score on a regular basis. When you review your credit history, you have the opportunity to catch any errors that could be affecting your credit score in the future.
At least once a year or before applying for a new auto loan or mortgage, it’s a good idea to check your credit score, as well as your credit history. In addition, if you find an error, make sure to notify each of the three credit bureaus (Equifax, Transunion, and Experian) so that they can investigate the matter.
In order to be able to apply for a loan, you need to maintain a good or excellent credit rating.