When it comes to your financial status, a credit score is one of the important indicators. In fact, it can make or break your experience with creditors. Every time you express inters in borrowing some money, your prospective lender needs to be convinced that you can repay the entire amount.

How are credit scores determined?

There are several factors that contribute to your credit score and each of them is considered independently.

Your payment history accounts for 35% of your score and it indicates your behavior as a consumer and borrower. This encompasses your mortgage and credit card payments. In addition, it shows whether you have bills in default or any delinquent accounts foreclosures and filed bankruptcies.

Debts will contribute 30% of your score and it takes into account the amount of credit you qualify for and the percentage you are utilizing. The credit utilization ratio is designed to measure if you are using a huge portion of credit allocation. If you can maintain your debts at 7% of your credit limit, your credit scores become higher.

The duration of your credit history accounts for 15% of your score. If your credit history is long, lenders will view you as a good borrower. By maintaining a line of credit for a long time, indicate that you can handle your debts in a reliable manner.

The mix of credit types you hold will contribute to about 10% of your credit score. The moment you utilize a wide variety of credit, your personal score will indicate the same. To have a healthy mix, ensure you are using mortgages, revolving credit, installment loans, and lines of credit.

The number of new credit you take will translate to 10% of your score. When you apply for multiple personal realistic loans lenders consider you to be a risky client since you appear to be desperate for a loan.

If you have an insufficient income, don’t borrow

Today, people who have poor credit scores got them when they were quite young. While the lenders also play a part, the individual is also responsible for their scores. In the past, anyone who didn’t have an income couldn’t qualify for a credit card or other personal loans. If you look carefully, this was a good arrangement because it makes no sense to borrow money that you can’t afford to repay.

But today, financial providers are carrying out marketing campaigns to students with no income. As a result, students are happy to acquire a credit card without considering that you will have to pay about 15% in interests. This results in huge write-offs and credit scores that are damaged in short weeks but you have to rebuild them over several years.

With the current situation in America, most people think that having credit is part of life and quite normal. As a result, people are walking around with debt at a very young age. But if you want to have a great credit score, you have to be careful when using credit. Basically, avoid using credit to finance a lifestyle you can’t afford.

Always live below your means

If you want to make all your payments on time, spending less than you earn is a great strategy. If you do this, you will always have some money at your disposal and you can readily use it when you are faced with an important expense. But if you don’t do this, you will be forced to take expensive loans every time you find yourself in a rough financial patch.

The truth is that you can’t plan for any scenario and even when you have sound plans something can still slip through your fingers. But if you accumulate more money, you have a better chance of growing your credit scores.

Pay all your bills on time

As simple as it seems, this is an important step when seeking to rebuild your credit scores. Whether it’s the credit cards or utility bills, you should make sure you are on time. Generally, your payment records are in the public domain and they will affect your credit score in the long run.

When you are using a credit card, it’s important to restrict your payments to things you can afford to buy. Nevertheless, you may find that you’ve missed a payment due to unavoidable circumstances. If this happens, make sure you sort out the issue as early as possible. At the same time, you can automate the payments to ensure that you are always on time. With the current economic situation, you may find yourself defaulting on your credit card debts. While this will definitely result in derogatory marks on your report, you can easily negotiate with your credit card provider and agree on a repayment plan.

Normally, individuals who have a credit score of 850 have managed to maintain a spectacular credit record for about 25 years. At the same time, they’ve performed exceptionally well in all the scoring categories.

Final words

While achieving a credit score of 850 isn’t a silver bullet it gives you an opportunity to use cheap credit. Nevertheless, it is quite important to make sure you maintain a great credit score. Besides qualifying for low-interest loans, you will have better chances of finding rentals as well as nailing your job interview. If you desire a perfect credit score, you should start today and stay consistent until you achieve the goal.

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