When trying to get the financial aspects of your life in order, one area that impacts all the others is your credit history. When you have a good credit history, it helps you save money on deposits and interest rates. It can also help you get approved easier for loans and credit accounts when you need them. Your credit history is compiled into a single number known as your credit score and lenders use this number to come up with information on a quick glance. If you want to take control of your financial life, it is important to know what your credit score is and know how to improve your score. If you want to build a great credit score, there are a few steps that you should take.
Always Make Payments on Time
Perhaps the best thing that you can do to help your credit score is to always make your payments on time. According to Fair Isaacs, the company who created the credit scoring model, your payment history is the biggest factor in determining your credit score. This means that every time you pay your utility bills, credit card bills and loan payments on time, you’re taking steps to improving your credit score. While it does take some time to develop a positive payment history, each payment helps a little. If you’re always making late payments or completely skipping payments, it will hurt your score tremendously. With today’s technology, you can simply set up your payments to be made automatically so that you won’t have to worry about making any late payments.
Pay Down Balances
Another step that you need to take if you want to build a great credit score is to pay down your balances. If you have multiple credit accounts and they are all maxed out, your credit score will suffer. If you can get the balances on your account down to about 30 percent of their available credit limits, this will help boost your score.
If you have several credit cards or other credit accounts, do your best to pay down the balances to this level. Then when they get down to this level, make an effort to avoid allowing debt to increase past this threshold. If you charge something on a credit card or on another type of credit account, make sure that you pay the balance off as quickly as possible. If you always allow balances to sit on your accounts, it will look like you do not know how to handle your finances.
Use Your Credit Wisely
When you’re trying to build a good credit score, you cannot afford to sit on the sidelines when it comes to utilizing credit. Some people think that if they never use their credit cards that it will somehow help their credit. In reality, never using credit will hurt your credit score. While you should not rack up big bounces on your credit accounts, you should use them sparingly. For example, you may want to make a small purchase on one of your credit accounts every month. Then when you get the bill, pay off the entire balance right away. By doing this regularly, it will show that you know how to handle credit responsibly. Over time, this will help you develop a positive payment record and boost your score up.
Throughout the process of handling debt, it is very easy to make mistakes. Once you accumulate a large amount of debt, you may try to use shortcuts to get out of debt. Many companies advertise debt help and make claims about being able to help you eliminate your debt very quickly. In most cases, all of these types of programs will end up hurting your credit score. For example, if you decide to enter into a debt settlement program, your score will be hurt because you are not paying back the full amount of money that you owe. If you file for bankruptcy to get out of your debt, this will hurt your credit score even worse.
As a general rule, you should never take on more debt than what you can realistically afford to pay back. If you are considering making a big purchase or taking on a load of debt and you’re not sure how you’ll pay it back, you should probably avoid the deal.
Handling your credit responsibly will go a long way towards helping you get a better credit score. Once you have a good score, you can start saving money and improving your financial life overall.
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