Your credit score is the yardstick that lenders use to measure whether you are creditworthy and capable of repaying your credits on time. A credit history packed with late payments and debts can severely cripple your chances of qualifying for credit at a better interest rate and credit terms.
So before you fill out an application for a new loan, mortgage or credit card, it is important to know your credit score. Typically, companies lean towards financial experts or use online credit score simulators to either get an estimate or their precise credit score information.
In this blog, we’ll give you a quick summary on how your credit score is calculated and on how to improve your credit score in under 2 minutes. Read on.
How are credit scores calculated?
Credit scores are computed using the details available on your credit reports. Several factors determine your credit score, some of them are:
- Payment history – Takes into account your capacity of making credit payments on time.
- Utilization ratio – Creditors evaluate your rationality in the way you use and pay credits. A slew of loan accounts that are quickly maxed-out or irregular may harm your credit score.
- Length of credit history – Takes into consideration your history of credit payments from multiple past and present accounts.
- Inquiries – Creditors would also want to know the number of applications you’ve given within a period and the response to those applications.
Usually, a higher credit score ranging from 750 and above (considered as an excellent credit score) improves your chances of qualifying for credit at nominal interest rates, while a lower credit score rate ranging from 649 and below may massively hike interest rates or even deem you ineligible for credits.
How to improve your credit score?
Pay your credits on-time, every-time:
Start by paying your bills and loans on time. Every delay has a negative influence on your credit score and can adversely affect your potential to apply for future credits. To make sure you never miss a payment, it is essential to set reminders on your calendar through services offered by creditors/bill paying service providers. These could be in the form of in-app notifications, emails or text reminders.
Balance how you use your credits:
Creditors would like to know that you are responsible and properly using your credit limit. Keep your credit card balance well below your credit limit. If the balance is too close to the credit limit, you may be considered a poor credit risk and receive a lower credit score.
Do not Close Unused Accounts:
Showing creditors that you have a positive history of paying your bills to an account for a long period is also a vital credit score factor. Do not close old credit card accounts right before applying for a loan. If you plan to apply for a loan shortly, you may want to hold off on closing old credit card accounts until after you receive the receipt for the loan.
Do not go overboard with credit applications:
Apply for the credits that you need and nothing more. Though it is hard to resist value-added offers on new credit cards, it is pivotal that you resist the lure of such hard-selling offers. After all, succumbing to such credit temptation may leave you with accumulated debts that can destroy your hard-earned credit ratings.
Poor credit scores does not imply that you are off-limits to ever availing credit benefits; you can always improve your credit score by following these vital steps to keep your credit health in the best shape possible.