It seems that so much of what we do is controlled by our credit score – this includes buying a new car, getting a loan, and taking the first step onto the property ladder. With this in mind, it’s essential to understand the process of maintaining an excellent credit score. With a strong credit score, it can save lots of hassle later in life!
What’s a Credit Score?
First and foremost, how can you expect to maintain a good credit score when you don’t actually know what it entails? There’s nothing wrong with not knowing. Essentially, a credit score is a quick assessment of your financial history and your reliability when it comes to finances. Your credit score is calculated using the following:
- History of paying debts and bills
- Debt history
- Credit age
- Level of overall debt
- Recent credit
For example, low credit scores are given to those with lots of debt and who have a history of missing payments. On the other hand, an excellent credit score is awarded to people with little debt and a good history of paying debts and bills. Using software tools like those developed by Credit Sense Australia will help you analyze credit scores and determine if a loan is appropriate.
Tips to Maintain an Excellent Credit Score
Now you understand what makes up a credit score, the tips below will make more sense!
1. Manage Credit Cards Carefully
Aren’t credit cards great? We have funds to buy stuff now and don’t have to pay anything back until later. Of course, this is the mentality that gets people into trouble with their credit score in the first place. If you have credit cards, keep the balances as low as possible. Credit cards help to build your credit score, but only when you stick to the limit; it’s best to stay underneath 30% of the limit.
2. Consolidate Cards
Another misconception is that it’s a good thing to have lots of small balances. In reality, this can actually harm your credit score. Instead, consolidate the cards and maintain fewer balances.
3. Pay Bills (Completely and On-Time)
Sadly, this is one of the most significant problem areas for the average consumer. Not all missed payments are reported to credit bureaus immediately, but you can be sure of a negative impact on your credit score if you continually miss payments. Did you know that even small fines at the library can affect your score? Always pay all bills on time and in full to maintain an excellent credit score.
Suggested– WHAT ARE THE DIFFERENT TYPES OF MORTGAGE LOANS?
4. Report Any Errors
For some people, their credit score is inaccurate because of a mistake on their report. Therefore, keep an eye on your report and inform the credit bureaus of any errors. You may see an additional debt or a missed payment where it didn’t happen; in these scenarios, don’t be afraid to dispute the mistake and have it taken off your record.
5. Manage All Debt
There’s often a focus on credit cards, but debt is equally essential for your credit score. The more debt you have, the more problematic for your score. If you can, consolidate debt so that your payments are taking chunks out of the actual debt rather than just paying interest.
6. Stop Applying for New Credit
While soft inquiries don’t affect your credit score, hard inquiries do…and this is what happens when you apply for a new line of credit. In other words, your score is affected every time you apply for new lines of credit. While trying to repair your score, this is particularly damaging.
Additional tips include:
- Contacting creditors to arrange payment plans (this is better than burying your head in the sand)
- Using a credit monitoring service
