Technology drives just about every facet of life in this day and age. You have probably considered getting your hands on a credit card to handle your finances in the modern world. However, you should know that credit cards can be just as useful as they can be detrimental, depending on the way you use them. If you are here, chances are you are new to the world of credit. Here's what you need to know about credit scores:
Credit Score in a nutshell
In a nutshell, a credit score represents your chances of repaying the loans that your lenders give you. It shows them how much of a risk you can be. Your credit score ranges from 300 to 850 and is determined by your credit history. The higher your credit score, the more reliable you come across. A high credit score can fetch you a bunch of benefits.
What benefits can you expect from a good credit score?
If you plan on figuring out how to improve your credit score, it does not hurt to find out what benefits you can get from it. Here are the main ones:
Better chances of getting your loan and credit cards approved
With a high credit score potentially comes higher chances of credit card and loan approval. Most consumers and borrowers tend to have a poor credit history, leading them to avoid applying for a new credit card. While a high credit score does not guarantee anything, it certainly boosts your chances of getting your loan or credit approved.Banks and lenders usually consider an array of factors, including income and debt. You could still leverage your high credit score and get the loan or credit card you want.
Reduced Interest rates on Credit Cards and Loans
Reduced interest rates is another benefit that you get for a high credit score. Having low-interest rates means you have to repay less and primarily the principal amount, leaving you more money for your purchases. If you have a high credit score, you qualify for loans or credit cards with lower interest rates.Boost your chances of getting approved for higher Credit Limits
The slew of benefits does not end with better interest rates and credit cards. You can increase your credit limit if you have the credit score your lenders are looking for. As mentioned, by having an excellent credit score, you are demonstrating your ability to borrow and repay the money on time. While you could qualify for deals with reasonably high credit limits with a sub-par credit score, your options are severely limited.Better negotiating power
As you may have guessed, building and maintaining an excellent credit score gives you more leverage. You have more options on the table to choose from, boosting your chances to negotiate and get the terms and conditions you want. However, this does not hold if you do not have a low credit score. A low credit score translates to fewer options, which means you have much lower negotiating power.What Determines Your Credit Score?
The following factors affect your credit score:
Payment history: Your overall payment history needs to look good because it accounts for 35%. Make sure you do not have any missed payments or loan defaults.
Current loan debt: This parameter accounts for 30%. You need to find out how much money you owe and if your credit cards are maxed out.
How long have you had credit?: The length of time you've had credit accounts for 15%. This parameter shows how long you have managed to hold on to a credit card and make timely repayments.
New credit: This parameter accounts for 10%. Make sure you do not apply for too many credit cards in a short period.
Credit types: Here is another parameter you ought to be aware of. This parameter accounts for 10%. Ideally, you should have a variety of debt types, including, auto, home, credit cards, and others.
Ways to Boost your Credit Score
Now that you know how vital your credit score is, here are a few things you can do to boost it:
Make timely payments
If you have late payments, make sure you get them out of the way as soon as possible. However, ideally, you should make all your payments on time. Maybe you could use Cred for paying your credit card bills. It is quite common to be behind on your payments from time-to-time. However, keep in mind that you cannot solve this by closing your account altogether.If you have a good payment history, you could consider asking your lender to forgive a couple of late payments. However, this may only work if you have been able to build trust with your lender, which you can primarily do by making timely payments consistently. Ultimately, you have to convince your lender that you are not a liability.
Keep track of your credit card reports
As obvious as it sounds, you would be surprised how hordes of customers fail to check their credit card reports regularly and end up paying unnecessary charges as a result. You can expect to find some unintentional errors on your credit report from time-to-time. However, you need to identify and rectify them as early as possible or end up paying extra. Doing so will lower your credit score in the long run.Identify areas of improvement
As you can see above, there are a few parameters that affect your credit score. Once you go through your credit card reports a few times, you need to identify which ones to improve. Considering how payment history accounts for 35%, make sure that you do not have too many overdue payments, and reduce your chances of coming across as a liability.
Besides that, you may want to take a look at your debt amount and how old your account is, considering these parameters account for 30% and 15% respectively. A record that shows consistently timely payments can take you a long way.
Request a higher credit limit
It is vital to keep your credit utilization rate low. Ideally, around 30%. However, if you cannot manage to do this, consider asking your lender to increase your credit card limit. Having a decent payment history can help you convince your lenders to do this for you. By increasing your credit limit, you can keep your credit utilization ratio intact, thereby increasing your overall credit score, while simultaneously, boosting your purchasing power.Avoid closing unused Credit Cards
Closing your unused credit cards is a bad idea. Keeping them open is a smart strategy as long as you do not have to pay annual fees. Closing your unused credit card account boosts your credit card utilization ratio, which as you know, will lower your credit score.Conclusion
If you are a newbie and want to get a credit card, by all means, go ahead. However, you need to understand the terms and conditions and take your credit score very seriously. Make sure you build a solid credit profile to boost your credit score. The tips mentioned in this article will help you do this.
Conclusion
If you are a newbie and want to get a credit card, by all means, go ahead. However, you need to understand the terms and conditions and take your credit score very seriously. Make sure you build a solid credit profile to boost your credit score. The tips mentioned in this article will help you do this.
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