Borrowing from financial institutions and using credit cards is a common practice in the modern world. However, what most people don’t know is that their borrowing and payment habits have a significant impact on their credit score.
A credit score summarizes your overall credit report. It is divided into several categories with the least score indicating a poor rating and the highest score an excellent rating. You should focus on having and maintaining a high credit score.
Why You Should Target an Exceptional Credit Score
A strong credit score will give you access to larger loans. This is because financial institutions rate your worthiness based on your credit rating. A higher score is an indication that you can pay your debts on time. Therefore, with such a rating, banks will be willing to lend you any time you need funds.
A good score will help you save on interest rates and fees. This is important when taking large loans to finance significant projects or goals. With an excellent rating, lenders will categorize you as low risk. This is vital as it will help you secure large loans at the lowest possible interest rates.
An exceptional credit score will qualify you for the best credit cards in the market. Similar to banks, credit cards provider uses your credit rating to determine your credibility. Once they find you have a high score, they will be willing to offer you their services. They will give you access to premium credit cards with the most rewards and the lowest interests.
Insurance companies also evaluate your credit score before deciding whether to offer you their services and at what rates. A poor score will result in many insurers turning you away. In contrast, a high score will present you as a reliable person. The insurer will then be willing to work with you and to give you amazing discounts.
There is an emerging trend where employers are using credit scores of potential employees to determine who they should hire. Therefore, if you want to increase the chances of securing your dream job, then start working on improving your credit score.
Another trend is that landlords are using credit scores to decide whether they should rent to individuals. They consider a high score an indication that you can be trusted to make payments on time. Therefore, if you don’t want to miss out on a great apartment to another person the next you want to move, then observe practices that will increase your credit rating.
How to Improve Your Credit Score
You can improve your credit score by observing good financial habits. This involves a variety of acceptable practices.
Make sure you repay your loans as agreed with the bank. Failure to pay the minimum amount is a violation of the contractual terms, which affects your credit reports and, eventually, your credit scores in undesirable ways.
The same applies to credit cards. Providers forward your report to credit bureaus. Thus, you can use Credit cards to build credit score by ensuring you clear your bills on time.
You should focus on keeping your balance low by utilizing less than your credit limit. The utilization ratio is a crucial factor. It is not only used by lenders to determine whether you have a good credit risk, but it is a decisive factor when updating credit scores.
Make sure you use the available credit only when only in need, as borrowing regularly will result in lenders checking your credit history often. The practice is regarded as ‘hard inquiry,’ of which having many under your name can hurt your credit score.
Avoid taking multiple loans within a short period. Having several accounts with large balances will result in you being categorized as a high risk, which lowers the credit score. Thus, if you need funds, try to borrow using one account as opposed to multiples.
Ensure you maintain your credit card accounts for as long as possible. Closing down existing ones results in the loss of the history associated with the accounts. Therefore, engaging in the regular act of opening and closing accounts will eventually destabilize and lower your credit score.
Your credit score is crucial. It determines whether you will qualify for large loans, premium credit cards, low interests, and whether you can be trusted as a tenant, among others. Therefore, you should focus on having an exceptional credit score.
The best way to improve your credit rating and maintain it at the highest level is to observe good financial habits. This means repaying your loans as agreed and using Credit cards to build credit score by clearing bills on time. Also, keep your balance low, do not borrow more often, avoid multiple loans, and maintain credit card accounts.