Lenders consider your credit score to be one of the most essential elements when deciding whether or not to accept your credit application and at what interest rate to do so.
If you have a strong credit score, it will be easier for you to qualify for lower interest rates on loans, credit cards, and mortgages.
It may also make it easier for you to get employment or rent an apartment. The following are some suggestions for establishing and maintaining a solid credit history:
Make on-time payments of your invoices.
Your history of making payments is the single most essential component that goes into determining your credit score. Your payment history constitutes 35% of your FICO score, which is the credit scoring methodology that is utilised the most often.
It is essential that you pay all of your obligations on time each and every month in order to maintain a good credit score, since late or missing payments may have a substantial negative influence on your score.
You may help yourself remain on track by scheduling automatic payments or reminders. For example, if you take out a 3000 loan, and you make the re-payments on time, this will have a positive effect on your credit score.
Maintain a minimal percentage of your available credit.
The proportion of your total available credit that is being used right now is referred to as your credit utilisation. Since it makes up thirty percent of your FICO score, your credit usage rate should be kept as low as possible.
It’s best practise to utilise no’ more than 30 percent of your available credit at any one moment, according to industry standards. If you have a credit limit of £10,000, for instance, you shouldn’t try to spend more than £3,000 in a single month if you can help it.
Keep a diverse portfolio of credit kinds.
Your credit score might benefit from having a variety of credit accounts, since this helps to demonstrate your financial flexibility.
Credit lines, loans, and credit cards are all included in this category. It is possible to show that you are capable of managing various forms of credit in a responsible manner by presenting a broad credit history.
Maintain a frequent check on your credit reports.
You are entitled to a free copy of your credit report once every 12 months from each of the three main credit reporting organisations (Equifax, Experian, and TransUnion). You should routinely check your credit reports to verify that the information included within them is correct and up to date. You should contact the credit reporting agency in order to correct any mistakes that you find.
Try to avoid establishing a large number of new accounts all at once.
It’s not good for your credit score to open a lot of new credit accounts in a short amount of time since it might lower your score. Because of this, it may be an indication that you are having financial difficulties and that you may have overextended yourself.
Instead, be sure to leave enough time between each application for fresh credit, and only submit an application for credit when it is really necessary.
Maintain previous credit accounts in good standing.
Another component that goes into determining your credit score is the amount of time you’ve had a credit history. This indicates that it is typically a good idea to keep old credit accounts open, even if you don’t use them anymore.
Even if you don’t use them anymore, you should keep them open. When you close old accounts, you reduce the length of your credit history, which may have a negative impact on your credit score.
Maintain continuous awareness of your credit score.
If you periodically check your credit score, you may help yourself keep on top of any changes or variations that may occur. There is a wide variety of free credit monitoring programmes that are at your disposal and can keep you apprised of any modifications made to either your credit score or credit report.
In addition to these pointers, you should also avoid making the following standard errors about your credit:
Just making the required minimum payment.
While paying the minimum payment on your credit card might help you avoid late fees and other penalties, it can also leave you in debt for a longer length of time if you just make the minimum amount.
This is due to the fact that you will continue to be charged interest, which will make it far more difficult for you to pay off the sum. Try to make a payment that is more than the minimum required each month in order to bring down your debt and lessen the amount of interest you are charged.
Co-signing for someone else
When you co-sign for a loan or a credit card, it implies that you are accountable for the debt if the main borrower is unable to make payments on the loan or the credit card. This may be a dangerous venture.
This might have a detrimental effect on your credit score and make it more challenging for you to get credit in the future.