There
are a good number of reasons why you should focus on creating a good credit
history. Maintaining a good credit history allows you many benefits. Namely,
you can get loans at a much better rate, you
can discuss a mortgage with better terms, etc.
Speaking
of which, we are going to explain how a credit score is evaluated and what steps you can take to improve your credit
score. Pay attention to these, and you
will do fine.
Evaluating a Credit
Score
Every
credit score company has its own approach
to determine a credit score, which they are not very open to discussing. These companies are very strict
about discussing their methods in public. But they do inform you about the
factors they use to evaluate a credit score.
These
factors are the number of accounts someone has, whether they pay their bills on
time or not, and how far back their credit history goes. Following, we are
going to discuss these in more detail.
Pay Bills on Time
Your
payment history plays an important role in calculating the credit score.
Therefore, you need to avoid late payments and make them on time every month.
If you are afraid you won’t remember the time, you should use credit issuer
offers.
Small
Business Credit Cards offer SMS and email reminders for payment dates.
You can also set up an automatic payment
from your bank account.
Debt to Credit
Ratio
For
the best results, you need to keep your debt to credit ratio low. The amount
you owe is the second most important thing
after your payment history. It pays to have low debt compared to available
credit.
In order to maintain a low rate, you need to
keep debt in control and enough credit available in your account.
Avoid Exaggerating
You
should never apply for every line of credit you can instantly. Restrain
yourself from applying for too many new credit lines at one time because it
ruins your debt to credit ratio. If you have managed to keep a low ratio, you
shouldn’t apply for new options instantaneously.
Every
application will open a new inquiry and
will have an adverse effect. It may seem to
the vendors that you are applying for way too much credit.
Open and Close
Accounts
As
lenders want clients with a strong credit history, you may ruin your credit
score if you open and close accounts on a regular basis. Instead, you should
leave some accounts as they are with a good credit standing.
This will help you devise which credit cards you should carry, and which loan option
you should apply for. Maintaining old
accounts with a good history opens up new possibilities for you.
You Don’t Have to
be Afraid of Anything
We
understand we made some drastic points, but
you don’t need to be afraid of credit. Maintaining a good credit history depends
on creating a habit of managing your accounts the right way. Doing so, you
won’t even need to borrow any money.
However, developing a good credit history depends
on dedication.
