The world today is run on credit, with lenders offering credit for all kinds of reasons. Most of us carry credit cards, usually more than one but that is not the extent of the credit we have, our lives are full of outstanding loans.
One of the issues with having all this credit is that we don’t pay enough attention to our credit report and the impact it has on just about everything! What most of us fail to realize is how important it is to maintain a good score and getting good credit isn’t always common sense. While at its best, credit can give a sound boost to our finances, at its worst, it can land you with major financial problems if not managed properly.
Importance of Credit History:
- Your credit history is something which follows you for a pretty long time and has a big impact on almost everything in your life, from getting a good job to getting any sort of loan.
- It is a comprehensive file which is used by lenders to determine if you are a good risk.
- The better the credit report looks, the higher the chances that a lender will approve you for a loan and with favorable terms. Employers will also see you as a responsible and capable applicant.
Looking to improve your credit score? Here are few points which can help
- Pay your bills on time: Late payments take a toll on your credit history. In order to maintain a healthy credit score and history, you need to have a good payment record. Almost 35% of your credit score depends on whether you have paid your bills on time. Even if you had a troublesome past as far as your credit record is concerned, a clean 12 months of paying the bills on time is a good indicator that you have handled your credit well. A bad credit record is something which is going to give you 7 years of bad luck.
- Get & review your credit report at least annually: It is a must that you get and review your credit report no less than once a year, so you can view the history, check your score, find any potential errors or accounts you did not open. Besides that, it is also important to check your credit report prior to making any major purchases which might require a loan, such a car etc. Most companies will look into your credit history before they actually hire you for a job; so check that your report is up to date before you apply. Also, get your your credit report from at least 1 reporting agency, preferably all 3. They are very similar but not exact copies of each other. One may contain bad information that the other 2 do not.
- Keep your old credit cards active: You might want to close old accounts if they are no longer in use. Even if you never use your old credit cards anymore and maintain a zero balance on them, make sure you still keep them open. Why does this help your credit score? Well, your credit age is important in determining your credit score. Closing your account also has an effect on your credit utilization ratio, which is the percentage of credit available that you are using. If you close an account and have balances on others, this ratio will go up and your credit score down. Your credit score takes into account credit age and credit utilization so keep those old credit cards even if you’re no longer using them. One exception, if your old credit cards have annual fees get rid of them and apply for a no fee credit card.
- Consider opening new accounts sparingly: Having many open lines of credit is a good thing for your credit score as long as they are in good shape and not maxed out. It’s okay open up new lines of credit but not all at once. Getting too many loans too quickly is a sign that you’re having financial problems and that you won’t be able to handle all the payments.
- Get a good mix of credit types: Another factor to improve your credit score is having different types of loans. This means auto loans, credit cards, personal loans, mortgages, etc. This, of course, doesn’t mean that you need to have new credit accounts just for fun; especially loans you can’t really afford just to give your credit score a boost. Instead you should only open the accounts as and when the needs arise.
Make your payments on-time, review your credit report frequently, keep old accounts open, apply for new credit sparingly and spread out how often you apply for a new account. If you need credit try to get a variety of loan types. Use some of these tips and you’ll find that your credit score will improve.
By Bill DeMaria