Money

8 Ways to Ensure an Excellent Credit Score

It’s generally common knowledge that having a favorable credit score is important, but why, exactly, is it so essential? Since various financial institutions use your credit score to either approve or deny lending, it’s vital to have a score that is in good standing. When you have an excellent rating, you’re more likely to receive lower interest rates on potential loans and receive more lending from the bank. The benefits even go beyond money lending but provide the ability to save cash on security deposits, insurance or phone service. If you want to maintain a high credit score, here are eight ways to ensure it doesn’t fall too low.

1. Understand Your Score

Your credit score represents your credit risk and includes a three-digit number, ranging between 300 and 850. A lower rating means your credit risk is higher, while a higher score means your risk is lower. Three different credit bureaus manage your score using similar rating systems by monitoring the ratio of credit in your name. Equifax recommends creating responsible credit habits now so you can reach all of your financial goals in the future.

2. Pay Your Bills on Time

Businesswire.com reports that six out of ten Americans are either anxious about paying bills or late paying them. Your credit score fluctuates when you don’t pay your bills on time. Therefore, it’s essential to stay current on all of your financial obligations. It’s also wise to make payments in full as much as possible or at least make the minimum payment. However, only paying the minimum could potentially stretch even small debts out over multiple years.

3. Treat all Debts Equally

Your credit rating includes revolving debt such as credit cards and installment debts or mortgages. Paying your credit card statement each month is just as important as meeting your obligations on your mortgage. Even if your line of credit has a lower interest rate, you should consider all debts a priority. Postponing low-interest payments can still negatively affect your score. Prolonged card balances can also damage your chances of being approved for any future lending.

4. Monitor Your Credit Report

It’s never wise to completely trust your livelihood to a third party. Most of the time, reporting is accurate, but it’s unsafe to assume errors won’t occur. When you keep a close eye on your report, you are more likely to catch any abnormality or fraud. Checking your record thoroughly and frequently helps monitoring services detect harmful predators as well. Not only that, but you can also rest assured that your score is correct and current. Undetected errors can also drop your score and harm your ability to receive loans.

5. Reduce Credit Card Balances

Not only is it difficult to pay down large credit card balances, but it also harms your credit score—those with the highest score, report less than a 9% balance on all open cards. Yet, you can still achieve a good score when your combined card balances equate to less than 30% of your overall balance. If you decide to carry a credit card, be responsible, and pay off the charges frequently to avoid prolonged debt and other financial burdens. If you already have a large balance on your card, financial advisors often recommend the debt snowball. This payment method allows you to make the minimum payment on all your debt balances but applies any extra income to your smallest debts until they are paid off.

6. Avoid Opening New Credit Cards

You may not realize it, but opening new credit cards negatively impacts your credit score. Each new card counts as a credit inquiry and, while credit bureaus consider this low impact, it still affects your overall score. The next time you’re shopping and store associates ask if you would like to apply for the store card, consider the potential repercussions it may cause before you fill out the application. It may seem fairly harmless, but it could mean the difference between the bank approving the loan on your home or not. Only open a new card balance when it is absolutely necessary.

7. Third-Pary Credit Boosting Services

If you are trying to increase your score and reapply for lending options, then there are ways to boost your score using a third-party service quickly. Although paying your debts on time will help raise your score, credit boosting services allow you to take out loans and then pay them off each month. Each payment you make counts as an additional good mark and bodes well with credit bureaus.

Other boosting options allow you to report positive payment history for utility bills that wouldn’t typically affect your overall report. These services are free and will enable you to increase your score at a higher rate.

8. Live Within Your Means

Credit cards make it easy to buy whatever your balance will allow. Yet, using the majority of your card balance doesn’t help you in the long run. In fact, it creates more financial strain in unpaid debts.

However, if you choose to make changes to your card, do it wisely and pay them off as soon as possible. Financial institutions like Wells Fargo often recommend not letting your total card debt exceed 20% of your yearly earnings. Then, make sure you never have more than 10% of your monthly take-home income set aside for credit card payments.

Wrapping it up

Having a high credit score indicates your ability to manage your debts and income responsibly. Creditors see your score as the amount of risk they are willing to take on by lending you money. When your score is high, they see a small risk, whereas a low report means a higher risk exists. Generally, banks are less likely to lend you funds if your score doesn’t meet specific criteria.

Paying your bills on time each month will help increase your score, and when you live within your means, you are less likely to get behind on payments. It’s also essential to monitor your report frequently to catch any abnormal activity. By following these recommendations, you are more likely to create positive spending habits and meet your financial goals sooner than later.

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