4 Simple Habits to Build a Good Credit Score

4 Simple Habits to Build a Good Credit Score

Do you want to raise your credit score? People that achieve exceptional results understand that adhering to a few simple guidelines is the key to their success. Adopting their behaviors could propel your credit score into the stratosphere, allowing you to qualify for the most favorable interest rates and lending arrangements.

What is Credit Score, and Why Do I need it?

They’re similar to an Uber rating for your financial situation, and every Australian has one. Your credit score is essentially a rating that tells prospective lenders whether or not you are likely to be a responsible borrower in the future. To the point where it can make or break your chances of getting a credit card or vehicle loan approval or even moving mobile contracts or service providers.

The question then becomes, how is your credit score determined in the first place. The amount of debt you now owe, your credit card and loan repayment history, and whether or not you’ve defaulted on any loans in the past all influence your credit score.

VantageScore, a firm formed by the three major credit agencies (Equifax, Experian, and TransUnion) to develop credit scores for consumers, has been gaining popularity among lenders. FICO is the largest consumer credit scoring organization, and its scores are the most widely used in lending decisions. Both scores are measured on a scale ranging from 300 to 850 points in the most recent models. Generally speaking, a score of 750 or greater is regarded as exceptional.

Habits That Help You Build a Good Credit Score

Once you’ve determined your credit score, you can begin taking actions to improve it by adopting the habits of people who have good credit ratings. Here are five such practices.

#1 Paying Your Bills On Time

The most important thing you can do to keep your credit score in good standing is to pay your payments on time every month. A significant portion of your FICO┬« Score is derived on your payment history, which also plays a role in determining your VantageScore. Consider setting up automatic monthly payments for at least your minimum amount due to ensure that you don’t mistakenly miss a payment deadline. You should also consider evaluating your balance and making payments throughout the month, rather than waiting until your bill is due on the 15th of the month. This can assist you in avoiding interest charges and ensuring that you do not miss a payment. Keep in mind that any payment that is received more than 30 days after the due date will appear on your credit report for seven years.

If you’re trying to improve your credit scores but don’t have a lot of accounts, you might want to look into Experian Boost as an option. On-time utility, telecom, and certain video streaming bill payments are automatically included in your credit report as part of this free service from Experian, which allows them to be used in the computation of your FICO score. This type of account would not normally appear on your credit report, but Experian Boost helps you gain credit recognition for the on-time payments you have made on these accounts.

#2 Maintain a low credit utilization ratio

Credit usage is a ratio that compares your credit card balances to your available credit limits. The way it works is as follows: To figure out how much credit you have available, add up the credit limits on all of your credit card accounts. After that, total up all of your credit card balances in one place. Your credit usage ratio is calculated by dividing your total outstanding amounts by your total available credit and converting the result to a percentage.

It is generally accepted that the lesser your credit use, the better your credit score. As a general rule, maintaining your credit use below 30% will avoid your credit score from being negatively affected; people with the best credit scores typically have credit utilization ratios in the low single digits.

#3 Keep track of your credit score on a regular basis.

It’s always beneficial to be aware of your current credit score and how it has changed over time: It assists you in understanding the impact that your actions have on your scores. In addition to this, reviewing your credit score on a regular basis will help you identify any problems that may be brewing and correct course if you find yourself on the wrong route. Having your credit score rise is quite encouraging if you’re working on improving your financial situation.

Another recommended practice is to check your credit report on a regular basis. Not only will you be able to identify any unfavorable or false information that may appear, but you’ll also be able to check to see if there are any new accounts that you haven’t applied for yet, which might be a symptom of identity theft.

#4 Only apply for new credit when absolutely necessary.

Having a variety of accounts and a diverse range of credit kinds is beneficial to your credit score. It serves as a signal to lenders that you have the knowledge and experience necessary to manage various sorts of loans.

Too many recent credit applications, on the other hand, can have a negative impact on your creditworthiness. Hard inquiries, also known as hard requests, are made of your credit report each time you apply for a loan or credit card by the lender. Although one hard inquiry on its own may result in a tiny and temporary drop in your credit score, a large number of recent applications can have a more significant impact on your credit score. You may be perceived as a greater credit risk if you have a steady stream of hard inquiries, or have just received a flurry of them.

When you do apply for new credit, make sure you understand your creditworthiness and that you only apply for credit when you believe you have a good chance of getting accepted. 

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