Having good credit is no longer optional; anymore having a negative profile with the bureaus can cost you employment, as many companies include these screenings in their background checks. Aside from the occupational standpoint, you can also expect to get turned down for loans (personal, auto, home). Even if you do get approved, be prepared to meet very high-interest rates that will end up costing you thousands extra on top of the principal loan amount. It cannot be overstated that having a good credit score and a good history is an absolute must in this economy. Unfortunately, too many people fail to realize this fact and many more do not know how to manage and build their credit.
What is a Credit Score?
Contrary to popular belief, the credit score or number is just one factor that banks analyze. Actually, there are about a hundred factors in total that determine creditworthiness, but there are a select few worth knowing about. Being informed about your credit is the only way to improve it; with a little hard work and determination, you can easily get your financial situation back on track and increase your score to good status standing. There are a few tricks of the trade as they are called that can and should take advantage of. Here they are; the tips that could potentially save you tens of thousands of dollars.
How to Improve Your Credit the Right Way
- Establish multiple and different lines of credit; having a mix of revolving credit accounts (i.e. credit cards) and other loans (auto, personal) is the best way to establish your credit history
- Never miss a payment; late payments have a very negative impact on your score and can hurt you when it comes to financing a mortgage. Some banks will not approve borrowers who have had 2 or more late payments in a year. It may not seem like a big deal when it happens, but know that everything gets reported to the bureaus.
- Keep credit card utilization rates under 10%; the sweet spot tends to 5-10%, as this shows the companies that you are a reliable and responsible borrower. Many people think they need to pay their balances in full, but this can, in fact, hurt you. The reason being that showing no balance means not using the credit line; keeping a minimum balance each month is the fastest way to improve your score.
- Don’t close old accounts; leave accounts in good standing as they are.
- Be wary of inquiries; every time your credit is pulled, it is reported negatively to the credit bureaus. This is why you should never apply for multiple cards or loans within a short timeframe, even if your score is good.