Importance of a Good Credit Score
Credit score acts as a tool for measuring your debt management ability. As for the lenders, with a high credit score, you are acknowledged as more responsible towards your financial responsibilities. Using the FICO model, a credit score of 850 is considered to be appropriate.
With an acceptable credit score, you can avail easier approval and better loan terms. An excellent or good credit score saves people huge amounts of money throughout their lifetime, as they receive better rates on auto loans, mortgages, and other financial lending.
In addition, individuals scoring a good credit rate are considered lower-risk borrowers, with a higher percentage of banks promoting their businesses by offering better fees, additional perks and rates. On the other hand, individuals with lesser credit scores are considered higher-risk borrowers. Hence, only a few lenders agree on approving their loans, along with a higher interest rate. Not only this, but a poor credit score affects your opportunities to avail rental housing, life insurance policies, and rental cars as your insurance score gets affected by your credit score.
Refer to the table below to understand and check credit score rating:
| Credit Score Range | Rating |
| 300-500 | Poor |
| 550-650 | Average |
| 650-750 | Good |
| 750-900 | Excellent |
Boost your Credit Score
To maintain a good credit score in order to grab better financial opportunities, follow the tips and strategies listed below:
Monitor your Credit Report
Before you begin working on your credit score, you must be aware of your present state. This begins by analysing your credit history. Check credit score using any online financial platforms that are accredited for authenticity. Further, review the report and check the points, increasing or decreasing your score.
Factors positively impacting your credit score include transactions of timely payment, low balance on your credit cards, loan accounts, fewer inquiries for new credit, older credit accounts, and multiple credit cards. Conversely, high credit card balances, judgments, collections, or late or missed payments result in degrading your credit score.
Manage Bill Payments
Over 90% of lenders check credit score to make wise credit decisions. The five factors that determine your score include:
- Credit usage
- Payment history
- Credit mix
- Age of credit accounts
- New credit inquiries
Payment history contributes largely to your credit rating. This is why it is advised to pay your debts on time and responsibly, as it benefits your credit score.
Hence, timely bill payment is the most simple and helpful way of raising your credit score.
Achieve 30% Credit Utilisation or Less
Credit utilisation is that portion of your credit limit that can be utilised at any time. Credit utilisation is the second most important factor, after payment history and score calculation.
To maintain your credit utilisation, try paying off your credit balances each month. However, if not possible, ensure to keep back 30% as your total outstanding balance or even less of the total credit limit. With passing time, you can bring the percentage lower to 10%, which is helpful to raise your credit score.
Another way of raising your credit utilisation ratio is by asking for an increased credit limit. With a higher credit limit, you can manage credit utilisation efficiently.
Consolidate Debt
A number of tools are available that help consumers monitor and manage their credit. Consolidating debt into a good amount and paying off high-interest loans and credit through consolidation is a beneficial step toward increasing your credit score. Consumers must ensure that their credit usage ratio is lower than that of their available line to ensure better credit building.
Limit on New Accounts
Although opening accounts are necessary to build your credit history, you should avoid applying for credit too frequently. Every application may result in a hard inquiry, which may lower your credit score. However, there’s a chance that inquiries will build up and negatively impact your credit scores. Additionally, opening a new account will lower your average account age, which will lower your scores. Read more...