A consumer’s’ ability to repay their debt in a timely fashion, in addition to managing their credit wisely, is reflected by their personalized credit score. The credit score, otherwise known as FICO score, reflects the credit payments patterns over time. It is sourced from one of the three main credit reporting agencies.
A good credit score is an important part of your financial future. You would be surprised at how many areas of your life a good credit score could come in handy. Landlords can request your credit report before deciding to rent to you, not to mention some employers may ask for your credit report before hiring you. Even auto and home insurance providers may request a credit profile, as many studies have shown that people who have lower credit scores tend to cost insurers more. When you have a higher credit score, it can open many doors for you, like securing your dream apartment or job, to a better loan rate.
Always Pay Your Bills on Time
Nothing says that you can be trusted more with future loans than paying your bills on time. A positive track record for bill payment may secure you a lower lending rate in the future. You will have significantly more leverage from the get-go. There is a strong likelihood that if your credit scores remain high, that come time for prospecting a loan, lenders will be fighting for your business.
Mind Your Credit Usage
Another important step in perfecting your credit score is being careful of your credit utilization rates. Your credit usage rate is not based on the amount of debt you owe, but rather how much you owe about the limits of your regularly used credit cards. Total your available credit against the amount of credit you have currently utilized. If this amount falls below 20% or 30%, the three reporting credit agencies will certainly look favorably upon you.
Maintain a Good Mix of Credit Accounts
Your credit mix grade is based on the variety of credit products that show in your credit history. This includes any accounts that you’ve closed that have yet to age off your credit report. It’s important to keep a good mix of credit accounts open at all times. Creditors observe many aspects of your credit management, which includes your ability to handle different types of credit accounts. If you can handle a good mix of debt obligations such as student loans, a mortgage, and a credit card, lenders are more likely to consider you, not to mention that your FICO score will likely benefit greatly from this.
Keep Your Accounts Open for a Long Time
It looks fantastic on your credit score when your accounts are both in good standing and have also existed long term. Your age of credit history is the average age of all of your credit accounts, which includes any closed accounts that still appear on your file. It stands to reason that if your average good-standing credit account has been open for a long period of time, you’ve demonstrated to creditors you’re trustworthy for additional lending.
Even if you don’t use some of your long-standing credit accounts its best to keep them open, you want to keep them in good standing. Your account history is a roadmap for lenders to follow. They evaluate not only your payment history but the duration of which you’ve held these accounts.
Exercise Caution When Opening New Accounts
When you open a new account, you lower the average age of your pre-existing accounts. Yes, credit bureaus want to observe your ability to manage multiple types of credit accounts, they also notice when you have too many accounts open as well. If you are making a large-scale purchase like buying a home or returning to college, of course, it makes sense to open a line of credit. But be careful, opening a new account can negatively impact your average length of credit history, in addition to knocking a few points off your FICO score.
In the end, a bad credit score is not the end, and reaching a perfect credit score is completely within your reach, as long as you are diligent and take your time. The two areas that require your focus are credit use and payment history. Remember to keep your eye on the prize!