Maintaining Your Credit Score
A few decades ago, credit scores were only used to assess whether or not you are eligible to get a good deal on your car loan or mortgage. In this day and age, however, things have changed. Your credit score plays a vital role not only on your car or house loan but also on your utility rates, employment, and insurance premiums. Therefore, maintaining your credit is more than necessary in establishing a brighter financial future.
Credit Score Defined
Also known as credit rating, credit score is calculated by the credit bureaus. There are three major bureaus that manage and compute people's scores. These are Equifax, TransUnion, and Experian. They utilize universally recognized systems and analytics in determining the people's credit rating. Their criteria for computing scores as well as their computation structure are still unknown, but you can expect them to assess your loans, credit lines and financial capacity to pay. Liens, repossessions, bankruptcies, collections, and repayment are also checked to arrive at your score.
Think of your credit rating as your grade in your class report. It is the snapshot of your creditworthiness over a particular period of time. Scores range from 300 to 850. If you have 700 or above, it indicates that you are a good borrower.
Importance of Credit Score
Lending organizations, such as banks, card issuers, and credit unions all take a look at your credit rating. Today, even the wireless service providers, employers, insurance companies, telephone and electric firms are using your credit to define how much credit limit they should grant you. Your score is also the determinant for your interest rate and the length of period that you can use the foregoing rate. Lenders also use the credit score to make a prediction as to which consumers will most likely fall behind their repayments.
As you can see, credit scores are very crucial. You should always increase it or at least maintain your score to obtain the best interest rates and the most promising deals. Your rating tells the lenders what kind of borrower you are.
A higher rating means that you are a good payer, thereby increasing your likelihood of being approved for a loan. Having a lower score, on the other hand, has many negative consequences. It will be difficult for you to get favorable deals on interest rates or, worse, you may not be approved for a new credit card.
Effective Measures in Maintaining Your Credit
To build positive credit, the process is fairly simple. However, many people fall into the debt trap, which is why they fail to uphold their current credit rating. To avoid doing the same thing, here are the easy ways that you can follow:
Credit Score Defined
Also known as credit rating, credit score is calculated by the credit bureaus. There are three major bureaus that manage and compute people's scores. These are Equifax, TransUnion, and Experian. They utilize universally recognized systems and analytics in determining the people's credit rating. Their criteria for computing scores as well as their computation structure are still unknown, but you can expect them to assess your loans, credit lines and financial capacity to pay. Liens, repossessions, bankruptcies, collections, and repayment are also checked to arrive at your score.
Think of your credit rating as your grade in your class report. It is the snapshot of your creditworthiness over a particular period of time. Scores range from 300 to 850. If you have 700 or above, it indicates that you are a good borrower.
Importance of Credit Score
Lending organizations, such as banks, card issuers, and credit unions all take a look at your credit rating. Today, even the wireless service providers, employers, insurance companies, telephone and electric firms are using your credit to define how much credit limit they should grant you. Your score is also the determinant for your interest rate and the length of period that you can use the foregoing rate. Lenders also use the credit score to make a prediction as to which consumers will most likely fall behind their repayments.
As you can see, credit scores are very crucial. You should always increase it or at least maintain your score to obtain the best interest rates and the most promising deals. Your rating tells the lenders what kind of borrower you are.
A higher rating means that you are a good payer, thereby increasing your likelihood of being approved for a loan. Having a lower score, on the other hand, has many negative consequences. It will be difficult for you to get favorable deals on interest rates or, worse, you may not be approved for a new credit card.
Effective Measures in Maintaining Your Credit
To build positive credit, the process is fairly simple. However, many people fall into the debt trap, which is why they fail to uphold their current credit rating. To avoid doing the same thing, here are the easy ways that you can follow:
- Pay your card balances and loans in full on or before your payment schedule.
- Keep your debt to income ratio below 50%, preferably 30%. For instance, if you have $1,000 credit limit, your balance should be $300 or at least a few dollars below $500.
- Dispute credit report errors.
- Don't apply for too many credit cards or loans at the same time.
- Don't close your other accounts without paying their outstanding balances.
- Retain your old accounts. The longer you have them open, the better it is for your score.
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