A decent credit score will mean you save a lot over a loan’s lifespan. That is because lenders use credit scores to determine if you are a risky borrower (among other factors). Risky borrowers typically get higher interest rates, and higher interest rates mean it’s more expensive to borrow money.
A lower credit score means that you can either be totally rejected for a loan or receive high-interest rate credit. A higher score falling into the good or exceptional category can get you access to the lowest available interest rates. So if you have bad credit, improving it will help your financial life.
Here are five things you can do now to boost your scores from “bad” to “good.”
To boost your scores, first find out the criteria they are based on. Careful study all three credit scores held at each credit bureau: Experian, Equifax, and TransUnion.
You have the right to one free credit report every 12 months from Experian, Equifax, and TransUnion. Review every credit report to ensure that the information is fully accurate. If errors or inaccurate information are found, please initiate a dispute with the appropriate credit bureau.
Examining your credit report will also aid you in assessing what you need to do to boost your ratings. You may have a history of skipping payments, or maybe you use too much of your allocated credit per month. Your credit scores will help in presenting a guide for what to do next.
You may also receive a breakdown when you get your credit score which explains why your score is what it is. Pay close attention to those details because you’ll understand better where you stand.
There are many factors affecting the credit ratings, and one of the most important is past payments. A history of prompt paying of the bills helps the credit ratings.
By comparison, late or missed checks will pull down the ratings. If you have had any late payments or missed any, make an effort never to miss any more. Consider setting up automatic credit card payments and activating text and email alerts, so you’ll never forget a bill is coming up.
If you have a credit card or mortgage loan balance outstanding, set up a programme to pay it off. This may include reviewing your spending and deciding when you can scale down so you can devote some of your profits to debt repayment. The amount of credit you use daily is considered the “cash usage ratio” relative to the amount of credit you have available to you.
The greater the credit utilisation ratio, the lower your ratings would be. (You should endeavour to keep the ratio below 30% and below 10% for the best scores.). If you have a lot of credit card debt, the credit utilisation ratio would be high. Paying down your debt will help drive down the utilisation ratio.
If your credit scores are in the bad range, the number of accounts you have might be one factor. If you have too few credit accounts, consider applying for an additional one or two over time. Conversely, to maintain a good credit utilisation ratio, you don’t want to apply for too many accounts at once or go overboard with the number of accounts that you have.
To read more on topics like this, check out the Finance category.