Your credit score is essentially a reflection of your creditworthiness. What this means is that this is the information that lenders and other financial institutions will look at to see if you can be trusted enough to borrow from them.
Taking out a loan is inevitable, especially if you are looking to buy a home or start up a business. However, it’s also important for other “smaller” endeavors, such as applying to rent a place or applying for a new line of credit.
Factors Affecting Credit Score
Several factors can impact your credit score. Depending on what your existing financial records look like, and when they are reported by your financial institution, your credit record can lose or gain points.
Ultimately, it’s going to be a reflection of your credit activity within a particular period. So for example, if you suddenly made a huge purchase with your credit card, which increased your usage, you may find that your credit score has decreased by a couple of points, or even several, in the next credit report cycle.
Apart from major purchases, hard credit inquiries can also impact your credit score. This means that you’ve applied for a new credit line and the lender is checking to see your creditworthiness. It’s not so much the fact that you’re being looked into by the lender, as it is about the fact that you are in need of money, hence the credit application.
With a hard credit inquiry, the lender pulls up a comprehensive report of your financial activity, and decides from there whether you’re a good enough creditor to extend their services to.
How to Improve Your Credit Score
Because of how important your credit score is for your financial stability, it’s crucial to employ best practices so you can keep your score healthy. If it’s on the bad end, for now, don’t fret because it is possible to turn it around fast.
Pay on Time
This is the most basic and simplest thing you can do to improve your credit score. Credit score bureaus do pay attention to your payment history as this is reflective of your capacity to pay. Timely payments are regarded with a good score because it shows that you have the aptitude to stick through with a payment agreement, which makes you an even more attractive creditor to lenders. It also plays to your benefit, because then you’re avoiding incurring higher interest charges and penalties.
Pay Missed Accounts
That said, if you may have missed some payments, work on getting those resolved first. The point is to get your records as updated as possible so that your score can improve. Paying on time does not only affect the interest rate you’ll need to pay, but more importantly, the outstanding balance you have with the account.
The more updated (or advanced, if possible) you are in your payments, the sooner you can finish off the loan and close the account.
Be Strategic About Opening New Accounts
Part of building good credit is establishing a good credit history. This means that you need to get your credit line active as well. If you’re just starting to build one, you can start with a secured credit card, for example. You can also borrow from companies like Maxlend, and check out Maxlend Reviews to know more about their offers and services that can further help you improve your credit score. While this will only give you a minimal line of credit, it does put you on the radar of the credit bureaus so to speak.
Do be careful about opening new accounts at the same time, though. You need to be strategic about it because opening one too many accounts all at the same time could be taken to mean a lack of control over your finances, which necessitates you opening new lines of credit every so often.
These are but a few of the most simple ways you can work on improving your credit score. The key here is coming up with a plan for staying on schedule with your payments, and paying off as much of your balance as possible.