Ways to Maintain a Better Credit Score This 2021
Credit cards are hugely beneficial payment cards that you can use for your everyday purchases like groceries, gas, and other goods & services. Credit cards are also an excellent resource for purchasing big-ticket items like travel packages, television, jewelry, and many other things. In simple terms, when you use credit cards responsibly, they serve as a valuable tool for handling financial emergencies or meeting unplanned expenses. To avail of these rewards, you will need to maintain a better credit score or improve your credit score. If you have a good credit score, it is easy for you to qualify for credit cards and loans at more affordable interest rates.
To improve your credit score means you are investing your time and energy smartly. But before you take steps to improve your credit score, you will need to understand how your credit score is calculated.
Credit Score: How is it Calculated?
Vantage Score and FICO are the two most popular credit score types in the USA. Most lenders use these credit scores to determine whether doing business with you is safe or not when you apply for a new loan. A credit score model, a complex software program to estimate your credit score, does not care about brands. It evaluates every detail of your credit report, which includes the last 24 months.
A few categories that are used to calculate credit scores are
Your Payment History
The most crucial point that FICO considers while calculating your credit score is your payment history. It means the lender wants to figure out whether you have paid your past credits on time or not.
How Much Amount You Own in Your Credit Cards
If you are using a lot of money available in your credit card, lenders can interpret that the consumer is at a higher risk of default.
Length of Your Credit History
If you have a more extended history of credits, it can increase your FICO credit scores. While giving you credit scores, FICO considers the age of your both oldest and newest credit account and the average score of your all credit accounts. Besides, FICO also considers your mix of retail stores, credit cards, mortgage loans, installment loans, and your accounts of finance companies.
Ways to Improve Credit Score
Keep a Look at Your Credit Scores
You can find hundreds of credit scores available commercially. You can't control the lender and will use which credit score to assess and grade your credit report. But, you can manage your credit reports to some extent. You should check your credit report from Trans Union, Equifax, and Experian. If you find any negative account or error in credit reporting, then the credit bureau will delete it hence helping you to improve your credit score.
Pay Your Bills on Time
You should avoid late payments. Be regular in paying your bills. If you pay your bills on time, it will create a good and positive impression on lenders. Payment history is the most crucial thing that credit bureaus like Vantage Score and FICO consider. It is better to avoid things like defaults, late payments, third party collections, repossessions, and foreclosures. To develop a habit of timely payment, you can consider emergency funds and automatic payments.
Reduce Frequent Credit Utilization
The ratio of credit utilization of the customer has a significant influence on his credit score. Your credit score improves when your credit utilization rate is lower, and you are paying your credit card balances timely. You should aim to deliver the balances of your credit card every month. If you are struggling with mounting payments of interest and high balances, you can choose the balance transfer credit card.
Take Help from your Relative or a Friend
You can take help from your friend or relative, requesting him to add you to the credit card as an authorized user. It will help you to extend your credit history.
Avoid Applying for New Credit Accounts Frequently
Whenever you apply for a new loan or credit, it goes through a hard inquiry. It further reflects on your credit report for almost 24 months. Such a hard inquiry has the potential to lower your credit score. So, before applying for new credit or loan, make sure you are eligible to get the approval. If the lender denies your application, it certainly has a negative impact on your credit score.
Some other ways to improve credit score include protecting your personal information, adding responsibility to your credit mix, and creating a budget wisely. If you feel helpless to set up an account and start paying off debts, you can advise a credit counselor. Also, beware of companies claiming to remove adverse credit reporting. No company can erase such information legally if it is accurate and so don't spend money on these companies or agencies. Instead, try to improve your credit score by taking proper and tried steps such as paying your bills on time and reducing your debt balances.
Apart from these, if you pay rent regularly and timely, add all this information to your credit report. It will help you improve your credit score by boosting your positive input to the credit score bureaus. It takes time to improve a credit score. It is not an immediate process and takes years of your financial behavior made conscientiously. Some strategies you will take to improve your credit score will help you see small improvements quickly. However, it will take time to join people with higher credit ratings. So, keep following the strategies to improve credit score patiently.