Your credit score is one of the key things that define your financial health. It’s what shows lenders at a glance how responsibly you use credit. The better your credit score is, the easier you are likely to find you are likely to get approval for new credits. A higher credit score may also open up chances for low interest and that’s why effort should be put into improving credit score.
All through your life credit score gets to play such an important role in the financial products that you get to access. For example, when applying for a mortgage or a credit card; your credit score can be used to help with determining whether your application is accepted and what you might end up paying in the process. Those who have a higher credit score are considered to be a lower risk which means that they are likely to get credit from lenders.
A credit score is a tool that’s normally used by lenders to help with determining whether a borrower qualifies for a mortgage, a loan, or for a particular credit card. Lenders use the credit score information and that supplied during application to ascertain your eligibility for financial products. They do the calculation through the use of a mathematical model to calculate a numerical score that clearly represents your credit history. The score then indicates the type of borrower that you are and whether you are likely to manage the repayments as required.
Different Lending Policies
It’s important to note that every lender has a different lending policy for credit scoring. So if in case you fail to meet the criteria of one lender then you can still opt for another lender. You should, however, take time and find out what contributed to you not meeting the set criteria in the first place before applying again. You should also be aware of the fact that engaging in too many searches within a short period of time might be viewed by other lenders negatively.
Factors that affect credit score
Your credit score is normally based on your credit report. There are a number of factors that can cause your credit report to change and having knowledge of them can be of help.
- What are your total debts and how much of the available credit are you using?
- What’s your history of credit account payments like?
- Credit searchers – this normally happens whenever an application for credit is made. For example, when you make an application for a credit card or phone contract.
- Public records – electoral roll and the county court judgments (CCJs)
Improving Credit Score
In order to improve your credit score; you may consider doing the following;
Review your credit reports
If you are to improve your credit then you have to be well informed of what is working in your favor or that which is working against you. That’s why you should regularly check your credit history. Get your credit report from each of the credit review bodies then takes time to review each report. You will be able to see what’s actually helping you and that which has the potential of hurting your credit score.
Factors that can contribute to a higher credit score include having a history of on-time payments, low balances on the credit cards, and a mixture of different loan accounts and credit cards. Others include minimal inquiries for new credit and older credit accounts. Factors to avoid for an improved credit score include; high credit card balances, missed or late payments, and judgments. Such can be major detractors to your credit score.
Get on top with bill payments when improving credit score
Prompt payment of bills is a key factor when working towards improving credit score. You should take the following into consideration; payment history – 35%, credit usage- 30%, age of credit accounts – 15%, credit mix – 10%, and new credit inquiries – 10%. Payment history is one thing that has the most impact on your credit score. That’s why you should consider having paid off debts such as old student loans that might have remained in your credit score.
Try to avoid late payments at all costs. You can use the following tips to enable you to make prompt payments;
- Create a filing system for keeping track of monthly bills. Set aside due to date alerts as that will make it possible for you to know when a bill is coming up.
- You can also automate the payment of bills through your bank account.
Aim and 30% Credit Utilization or Less when Improving Credit Score
Credit utilization is a portion of your credit limit that you get to use at any given time. After examining your payment history, it’s the second most factor that influence your credit score. The best way of keeping your credit utilization in check is to ensure that you pay your credit card balances each month in full. If you are unable to do that then you can observe a good rule of keeping the balance at 30% or less of your total credit limit.
Limit requests for new credit
If you are working on improving credit score then you should also ensure that limit your requests for new credit. There are two types of inquiries done into your credit history with one being referred to as hard and another as soft. A typical soft inquiry may entail checking your own credit, giving permission to a potential employer to check your credit. Soft inquiries may not affect your credit score. However, hard inquiries can adversely affect your credit score.
Hard inquiries take place when you apply for a new credit card, an auto loan, a mortgage, or any other form of new credit. Having an occasional hard inquiry may not have a huge impact on your credit but doing many of such within a short period of time can have an adverse effect on your credit. When such inquiries emerge, lenders might have the opinion that you are facing difficulties. If in case you are working on improving your credit score then you should avoid making applications for new credit.