Every time you set a substantial financial goal, like buying a house in Rio Grande Valley or starting a business, credit is likely part of the picture.
Credit helps you buy the house you want or raise the amount needed to run your business, but it may give you a lot of problems if you don’t use it well. If you don’t manage your credit properly, you risk getting a low credit score.
Why Does Your Credit Score Matter?
A credit score is just like a report card that banks, car dealerships, credit card companies, and mortgage lenders request when you apply for a loan. It contains important details about your credit history like:
- Total debt
- Age of credit
- Credit mix or the types of accounts you have
- Number of requests for a credit report
- Payment history
- Public records, such as bankruptcy
An excellent credit score may mean a difference between hundreds and thousands of dollars in savings. The higher your credit score is, the more likely you’ll be qualified for the interest rate and amount you want.
What is a Good Credit Score?
Financial institutions and lending organizations usually base their decisions on two types of credit score—one is by FICO® and the other is by Vantage Score. Industry-specific credit scores also exist. All institutions get their information from credit reporting bureaus.
Both FICO® and Vantage Score measure individual credits from 300 to 850. Both organizations consider a score of 670 and above as good, which gives you a chance to be approved for a loan. By scoring above 800, you have a better chance of negotiating the terms of the loan and getting the amount and interest rate you want.
How Do You Improve Your Credit Score?
If your credit score isn’t quite where you thought it would be, don’t panic. There are manageable ways you can improve your score and your chances of qualifying for your preferred loan amount and interest rate.
1. Review your credit score and report errors
Examine your credit score and pay attention to every detail. Take note of mistakes and notify the credit reporting agency to have them fixed.
2. Prioritize credit card payments
Credit reporting bureaus consider credit card debt as “bad debt” because it doesn’t generate long-term income, unlike a good debt, such as investments. To lower your utilization rate, prioritize payment of a credit card outstanding balance that’s close to the credit limit.
3. Set up reminders for payments
Paying your bills on time, consistently, improves your score within months. List down payment deadlines for each credit on your planner or calendar app, and make sure to turn on your notifications on your phone.
4. Contact your creditors
If you missed your deadlines or couldn’t pay your monthly bills, set up a payment plan with your creditors. Addressing the problem immediately reduces the adverse effects of high outstanding balances and late payments.
5. Don’t close unused credit accounts
The age of your credit history plays a factor in your credit score, so don’t close them just because you haven’t been using them. If you need to close credit accounts, close the newer ones.
It usually takes three to six months of excellent credit behavior to improve your credit score. If you find yourself needing a loan, spend some time to review your credit score and take manageable steps in improving it. Doing so gives you a better chance of getting your dream home or other huge purchases, or pursuing investments.