Necessity of Having a Good Credit Score
A credit score is a statistical number that depicts a person’s creditworthiness. A credit score is a three-digit number ranging from 300 to 850, with 850 as the highest score that a borrower can achieve. The higher the score, the more financially trustworthy a person is, so that is why you should improve your credit score.
A FICO score is the most commonly used credit scoring system as of 2016. Consumers can possess high scores by maintaining a long history of paying their bills on time and keeping a low amount of debt.
Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers. And also they mitigate losses due to the bad debt. This is also another reason to improve your credit score.
Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. Lenders also use credit scores to determine which customers are likely to bring in the most revenue. The use of credit or identity scoring is an implementation for a trusted system and that is another reason to improve your credit score.
Ways To Improve Your Credit Score
1. Minimize outstanding debt to maximize credit score
To improve your credit score, you need to first minimize your outstanding debt. You need to know exactly how much you owe, how much interest you are paying, and to whom.
Once you have added up all the debt, work out how much you can reasonably afford to pay off each month. Remember that these processes take time and thus expecting quick fixes for such problems is pointless.
Consult counselors if necessary as their services can help you work out what to do about your debts, establish a budget that you can stick to and negotiate on your behalf with your creditors to reduce your monthly outlay.
2. Avoid overextending yourself and causing inconvenience
Be it a busy schedule or insufficient funds, always make sure that you never overextend yourself on a loan. Plan ahead and have the required amount ready when payment is due.
Every overextended payment takes you one step away from being able to improve your credit score. Considering that this road is long, it is healthier that corrective measures are implemented as soon as possible.
3. Refrain from applying for credit unnecessarily
Prevent yourself from accumulating debt and overextending the resultant payments. By this you are hurting any possibility of a chance to improve your credit score.
Taking credit is necessary considering that finding hard cash is not the easiest task these days especially in India (after demonetization). This doesn’t mean that the only payment you make is on credit. To minimize debt, first minimize credit usage.
4. Don’t give unnecessary signs of being in a compromising position
Sometimes, one of the best ways to improve your credit score is to not do something that could sink it. Missing payments and suddenly paying less (or charging more) than you normally do.
Other changes that could scare your card issuer (but not necessarily hurt your credit score): taking cash advances or even using your cards at businesses that could indicate current or future money stress.
5. Don’t obsess over your credit score
You should be laser-focused on your credit score when you know you’ll soon need credit. Meanwhile, pay your bills and use credit responsibly. And your score will reflect these smart spending behaviors.
It is impossible to provide a completely accurate assessment. And one such assessment is on how an action will improve your credit score. This is why the credit risk factors provide you with your score and its importance.
They identify the elements from your credit history that is having the greatest impact, so that you can take the appropriate action. Rebuilding your credit score is a slow process. Thus to improve your credit score, you require patience and a focused effort.
It is necessary that you realize that you can’t directly rebuild your credit score. You rebuild your credit history, which is then reflected in your credit score. The time taken to rebuild your credit history depends on the changes made to improve your credit score.
- Most negative changes in credit scores are due to the addition of a negative element to your credit report, such as an error in collection account. Also remember the below mentioned points, when it comes to improving your credit score.
Wrongdoing remains on your credit report for seven years.
- Most public record items remain on your credit report for seven years, although some bankruptcies may remain for 10 years and unpaid tax bonds remain for 10 years.
- Inquiries on credit score remain on your report for two years.
As you can clearly see, changes take duration’s measured in ‘years’ and it is thus advisable that corrective measures be taken as early as possible . This prevents any need to improve your credit score. It is evident that maintaining a good credit score is much easier than improving on an existing tarnished one.
You can find me cooking up new ideas to keep myself occupied since I hate staying idle.
I also hope that one day I write something worth plagiarizing 🙂