6 Steps to a Good and Healthy Credit Score
It’s important to maintain a good credit score. Having a positive credit history helps nearly every aspect of your financial future, to qualify for car loans, mortgage, other loans and even when applying for a job.
With a good credit score, you will be perceived as a “good risk”. Hence, a good credit score gives you the ability to receive better rates. You won’t even need to provide security deposits on utilities.
Building good credit requires time and persistence. To fix your credit score, here are the five major components that make up your credit score…
- Payment History is 35% of the score
- The amount owed is 30% of the score
- Length of credit history is 15% of the score
- Credit mix is 10% of the score
- New credit is 10% of the score
In this guide you will read steps you can use to improve your credit score quickly:
STEP 1: Pay off your balance on time by setting up reminders
35% of your credit score is made by your payment history. This is assessed through your ability to pay on time, and the amount you pay with regards to the balance.
One of the reasons why most people can’t afford their balances is because they use more credit than they can afford. Your credit card is not your income extension. Always assign a spending limit favorable to your budget and keep reminders to ensure you never miss paying on time.
In any tendencies that you’ve already missed a payment deadline or can’t afford your monthly bill , contact your lending company immediately. This will help you set up a payment plan which can ease the negative effects of late payments and high outstanding balances.
STEP 2: Keep your debt percentage low
The closer the amount you owe to the credit limit, the more you are seen as a high risk. So start with paying off the cards with the amount owed that is closer to the credit limit.
Since the amount owed makes up 30% of your score, it’s important to keep your debt utilization around 10%- 30% of credit available.
You can increase your credit limit to make it seem that you’re using less percentage. But, make sure that you have a self-assigned spending limit, and that you’re disciplined. Do not adjust your spending habits with your new credit limit or else you’ll just end with a bigger balance to pay.
Trying to pay off your balance twice a month can also help keep your debt percentage low.
STEP 3: Don’t close older credit card accounts
The older the age of your credit history, the better the score.Since the age of your credit card results to 15% of your score, do not close unused cards. The age of your credit history matters. Hence, if you’re going to close an account close the more recent ones. In this way, your credit score still benefits from the older accounts.
STEP 4: Have a diverse account
A diverse account, a mix between various loans such as credit cards, auto loans, mortgages, personal loans etc. can improve your score by 10%.
This doesn’t make up much of the score, so if you don’t need these varying cash loans at the moment, don’t avail them.
STEP 5: Apply for new credit
It’s fine to open a new account, but applying to several accounts in a short span of time affects your score negatively. So try to avoid this. This aspect affects your score by 10%
STEP 6: Review your credit report
Check your credit report for errors. Major credit reporting bureaus give a free report once a year. Reporting mistakes such as debts being listed twice, or incorrect reports of delinquents can increase your credit score once corrected.
Another way of improving your credit score is through tracking and automation. Tools such as Credit Karma can help you monitor, gain insights, and make better decisions when trying to improve your credit score.