1. Build your Credit Score
2. Reduce your Current Borrowing / EMI Costs
Your credit score is a number (typically ranging from 350 to 800) that tells how worthy you are of getting credit. Lenders use your credit score to evaluate whether you will repay your debt responsibly or not. A high credit score would make you a worthy candidate in the eyes of lenders, whereas a low credit score could easily hinder your chances of getting credit. Credit bureaus like Equifax, Experian, and TransUnion assess your entire financial history and use a fact-based mathematical algorithm to calculate your credit score.
A good credit score can open up a lot of possibilities. It can help you to qualify for the best APR when you borrow money, and it can influence lenders to consider you creditworthy. You must know how you can increase your credit score and improve your credit health. Go through our tips to boost your credit score.
The one thing that lenders are always worried about: will the borrower repay the money on time? If you pay back your balance in full on time, you are considered a reliable borrower. Avoid late payments for all your accounts - not just your credit card bills but also your rent, utility bills, and even your cell phone bill.
If you can't remember all the due dates well, set up autopay and get it off your head. A missed payment is really detrimental to your credit score.
Don't get into debt. Clear off all existing debt. If you notice that it's getting difficult for you to pay your credit card bills on time, you must stop making purchases with your credit cards. The new purchases made may increase your credit utilization ratio, which in turn will reduce your credit score. Use a debit card or cash at this juncture. As you clear off your existing debt, your credit utilization rate might drop and give a boost to your credit score.
Credit age is essential for your credit score. It shows how long you have been managing credit. You will be considered more worthy of getting credit if you can prove that you have been maintaining your credits responsibly for an extended period.
Well, if you ever get into a "cleaning spree" and decide to close old and unused credit cards or accounts to clear out financial clutter, stop immediately! It might free up some space in the card-holder section of your wallet. However, it will cut down your total credit limit and increase your credit utilization ratio. To sum it up, avoid closing your old credit card accounts, as it might drastically bring down your credit score.
You should keep your credit utilization ratio within 30%. If you notice that your expenses are exceeding 30% of your credit limit, your credit scores will inevitably drop. Consider increasing your credit limit in such a situation. A higher credit limit automatically brings down your credit utilization rate, provided that your expenditure or credit balance remains constant.
You may call your credit card issuing company and request for an increase in the credit limit or make an application online. You could also get another credit card for the same purpose. However, increasing your credit limit isn't a piece of cake, and you might have to go through a rough road. Once you successfully manage to improve your credit limit, spend carefully - your expenses must not increase. This will balance out your credit utilization rate, and a low utilization rate boosts the credit score.
Hard inquiries deduct points from your credit score. If you apply for too many lines of credit at a time, each will amount to a hard inquiry. These hard inquiries remain on your credit report for quite some time. Many hard inquiries at a time will not only reduce your credit score but will also make you seem quite desperate for cash. Hence, lenders will not be able to trust you. So whenever you apply for credit cards, spread the applications apart over a long period.
Now that you know how your important credit score is for your overall financial health, you must ensure that yours stays in great shape. Follow these simple tips to keep your credit score on the rise. Keep checking on your credit report from time to time so as to understand your mistakes and work on them accordingly.
Building your credit health is a time-consuming process; you need to handle it with patience and wisdom. Use mymoneykarma as your finanacial guide, and make sure that you check your credit score regularly.