Your credit score is a three-digit number that plays a large role in your financial life. Listed below are a few reasons to try to maintain a high credit score.
Unfortunately, hard times can happen unexpectedly, causing you to make a few late payments to creditors or even fall behind a month or two. If this occurs, it’s important to catch up as quickly as possible. You can borrow from a family member, take out a personal loan, or refinance your house. If you are too far behind and these are not available options, contact the creditors one-by-one to see what you can do. If you are not comfortable doing this on your own, check out other debt-relief options. Doing nothing will only create a scenario where your credit tanks, making it nearly impossible to dig out from under your current predicament.
Expand Your Buying Options
A favorable credit score ranges from 700 to 850. With this score, you have the advantage of choice. You can choose the lender you want instead of the ones willing to take a risk. You can ask for increases in credit and apply for home and auto loans with the best companies.
Today, many of the top-rated insurance companies check your credit score prior to processing the rest of your initial application. This means if your score is poor or marginal, that you can lose out on securing the best rates and reputations.
If you’re looking to rent a home instead of buying, this can become challenging with poor credit. If the owner moves forward, they may add a security deposit above their normal requirements. In addition, the utility companies and cable service providers will also require a security deposit.
How Credit Bureaus Determine Your Credit Score
There are several factors that, together, create your final score. Payment performance, debt-to-income ratio, credit history length, types of credit, and inquiries for credit. Your past performance, the way you repay debt, is 35% of the score. How much debt you owe out is 30% of the score and the remaining three make up the balance.
Monitoring Your Credit
You have the right to get a free copy of your credit report and score annually. Take advantage of it and review your credit report carefully for any irregularities or discrepancies. It only takes one or two late payments to lower the score considerably. If a creditor marked a payment as late in error, you can fix it.
Ways to Improve Your Score
Sadly, if you currently have a poor score (below 500), it will take time to raise it to a good rating. However, you can begin to move your credit score up in short order. Paying off the debt that has been placed in collections can raise your score in a few months by double digits. To maintain it and keep it slowly moving upwards, begin making payments to financial institutions on time and reduce your current credit card debt. Try to lower each balance to at least a third of the credit limit. It’s not wise to close out accounts with established credit as this will lower your score.
If all of your credit accounts are in collection, you only have negative reporting on your report. One way to offset the numbers is to apply for a secured credit card. Thankfully, there are a few companies willing to take a chance on people with poor credit. The limits are low and the deposit may be a hundred dollars or more. However, after 6 months of timely payments, you’ll see a positive improvement in your credit score.
The higher your credit score, the more able you are to get a loan or credit card with the best interest rates. Thankfully, your credit score is not permanent. You can change it for the better.
Aside from your personal credit, ensure building your business credit as well. If you’re planning to venture into a startup small business, you also need to build good business credit to get the best deals when borrowing money for your capital. Once you have a bright business idea in mind and a feasible business plan, you can register your business and open a business account.
Your Credit Score Speaks Your Future
Your credit score can be your life saver. If you have a good credit standing, more banks and financial institutions will be willing to offer you their products and services. It means that you can easily borrow money to finance a new business venture or anything urgent or important because of the trust rating associated with your credit score.
With all the things happening around you, it’s important to have good credit score to back you up when getting a loan to finance your emergency needs or to start a business. Don’t ruin your credit standing with unwise spending. Budget your income sources properly, and set the right amount to pay your debts on time as much as possible. Self-discipline in handling your money is still your best weapon to avoid negative impacts on your credit score.