Ensuring that you have a good credit rating has a big impact on your financial life for many reasons. Not only is it a big factor in your eligibility for loans, your credit score also influences everything else – from your monthly premiums, interest rates, apartment rentals, mortgages, and even your job eligibility. Thus, keeping track of your credit and learning ways to improve it is highly beneficial.
So how do you do it? The following tips and strategies should help you out:
Steps to Tracking Your Credit
Get Your Free Credit Report
How often do you read your credit report? Do you take time checking all the items and corresponding charges or do you just look at your total amount payable (or minimum amount due) and proceed from there? There’s a reason why credit card companies send a free credit report to their clients. As the account holder, you have a responsibility to check if the entries in the report are correct. Just because everything is automated in their end doesn’t mean your credit card statement is free from errors. Even machines and software programs experience glitch from time to time. So, beware!
Dispute Any Inaccuracies
Once you found out any inaccuracies, you should report it to your credit card provider as soon as possible. Contact your lender or creditor and let them update or remove the inaccurate information. Remember those suspicious activities might be a sign of identity theft. Sure, it’s a hassle. But checking your report and disputing errors as you see them is an essential way to protect and improve your credit.
Understand Your Credit Score and Risk
What makes a good credit? Most credit scores, such as the FICO score, operate within the range of 350 and 850. Generally, a score of 700 is considered ‘good’. See below for your reference:
- Excellent Credit: 750+
- Good Credit: 700-749
- Fair Credit: 650-699
- Poor Credit: 600-649
- Bad Credit: below 600
Remember, however, that this rating system is not set in stone. Lenders have varying definitions of “bad” and “good” credit. Check with your lender to know how they rate your credit. Knowing where you stand is important to understand your risk levels. Many companies include it in your statement but just in case, you can also study your credit rating from third-party reporting agencies.
Pay Your Bills on Time
The single, biggest influencer in your credit rating is your ability to pay your loans on time. In fact, your credit history is equivalent to 35% of your score! That’s really a big slice of the pie. Many people choose to pay just the minimum amount due to their credit card statements. But if you can pay in full, do it. This does not only greatly improve your score, you also avoid the likelihood of getting heavily indebted in the end due to unpaid balances that piled up over time.
Open a Credit Card
Opening a new credit card can boost your score if this is your first credit card. 15% of your credit score is based on your “credit age” or how long you’ve been using credit. As a general rule, the longer you’ve been using it, the better your score is. There are some instances, however, that opening a new credit card could hurt your rating. For instance, adding another account could raise your credit utilization which is defined as the “ratio of your credit card balances to their credit limits”. You should know that 30% of your credit score takes into account how much of your available credit is being used. The more of your new credit limit you’re using, the more your score is negatively affected.
Manage Your Existing Debts
Lenders wouldn’t want to deal with people who have a history of missed payments. Make sure to keep track of your debts and pay them on time. This is the key to an improved credit score. Staying organized with your financial responsibilities, from your loans to utility bills greatly helps.
Apply for a Small Loan
One way to improve your credit score is to prove to lenders that you are capable of paying off a debt. The key is to pay it on time. If you miss, instead of raising your score, you are just going to pull it down badly. Be careful when using this strategy and make sure to choose the right lender. Read the terms and conditions to smartly compare personal loan offers.
Lastly, be patient. It takes time to build a strong credit score. If you currently have a poor rating, you will have to work double time to increase it. Don’t worry, it isn’t the end of the world! By following the steps above, you can significantly boost your credit rating and transform your financial life.