Your credit score weighs your credit-worthiness, and helps lenders and other organizations to judge whether or not you’re likely to pay back debts in a timely manner, or warns them if you might be an unreliable borrower.
This means that, whether you’re looking to buy or rent your first home, purchase an investment property, take out insurance, or get a loan for a business, your credit score will have an impact on the likelihood of approval, as well as the rates you pay on loans or policies.
The better your rating, the more money you are likely to save over the years — a figure that can easily amount to tens of thousands of dollars during your life. As a result, having a high credit score should be an important personal finance goal.
There are a number of factors that can affect where your rating sits. From your credit card and loan payments, to the length of your credit history, current level of debt, and amount of credit applications, there are many different elements of your personal finance taken into account. Read on for some of the easiest ways you can maintain your credit score over time.
Check Your Current Score for Errors
It’s worth regularly checking your credit rating, just in case there are any errors — it can sometimes happen. Contact one of the nation’s credit agencies to get a copy of your personal credit report and then read through it thoroughly. Be on the lookout for things such as late payments that didn’t occur, incorrect credit limits, and collection items that should have been assigned to someone else’s rating. Getting errors taken off your credit report can help preserve your score, or even drastically improve your credit score and make it easier for you to get approved for things like top-rated credit cards.
Pay off Credit Cards and Loans on Time
One of the best things you can do to keep your credit score high is to show that you pay off your debts. This means that you should always pay your credit cards off on time, as well as any other loans. By making all of your bill payments on time, month after month, you prove that you’re a “good risk” for lenders. If instead you fall behind on payments regularly, even if by just a few days, this can negatively impact your score.
If you’re saving up for a big purchase, like a house or a car, and trying to put all your funds towards the deposit for that, don’t forget to keep on paying your current, smaller loans. If you struggle to remember payment due dates or lose track of paperwork, it pays to set up automatic withdrawals through your bank. This way, all your loans and other bills will be paid on time, without you having to think about it further.
Be Wary of Applying for Too Many Loans or Cards
Another factor to be aware of is that each time you apply for a credit card or other type of loan, the issuer looks into your credit report to ascertain whether or not you’re likely to pay funds back. This results in an inquiry on your credit rating.
If you apply for lots of different loans, your score will suffer, as it looks like you must be desperate for funds or that you’re regularly knocked back and therefore need to keep applying with other lenders (even if this isn’t the case). You should minimize the amount of applications you put in each year, especially within a short period of time. Also try to never to apply for a loan that you’re not confident will be approved.
Keep in mind too that it isn’t just banks that can generate inquiries — rental companies, telecommunications firms and other businesses that allow you to set up monthly accounts also tend to check credit reports.
Lower Your Debt to Credit Ratio
When you’re working to sustain your credit score, it also helps to lower your credit utilization — that is, your debt to credit ratio. Generally around a third of your rating is determined by the percentage of available credit you’re using at a time. This means that the lower your rate of utilization, the better your credit score will be. Try to keep your rate sitting at less than 20 percent.
If you need to lower your debit to credit ratio, the easiest thing to try first is asking for higher credit limits on your credit cards. If increases don’t get approved, then work to pay off your cards. Stop charging anything new to your credit cards for a time and instead only pay with cash until your utilization level lowers.