Most of us probably never pay too much attention to our credit scores until the time when we need to apply for a car or a home loan. Your credit score, which is primarily based on your credit reports, will basically determine whether you will be approved for a loan or not. Aside from the maximum loan amount, the credit score will also affect the interest rate that will be charged on your account. Even though your loan will be approved, having a poor credit score can cost you additional thousands of dollars over the duration of your mortgage.
Although it will take several months to a couple of years to get a poor credit score to an excellent rating, there are some measures that you could take to prevent this disaster from happening in the future. Even if you already have a poor credit rating, you can still manage to rebuild a good one with a few effective strategies and, of course, self-discipline. Check out these 5 tips to improving your credit score and be qualified for a better loan offer in the future
- Check credit reports for errors.
Many people tend to underestimate simple credit report errors, thinking that they don’t necessarily affect their credit rating. Faulty credit reports occur more frequently than you might think. And a minor error can have a huge impact on your credit score. Make it a habit to regularly check your credit reports for errors so you can maintain an excellent credit rating. If you found any inaccuracies, contact your creditor as soon as possible.
- Get a free credit score assessment.
Your credit score is actually computed based on five components with different weight assignments. Traditionally, FICO uses the following scheme: payment history (35%), credit utilization ratio (30%), the length of credit history (15%), new credit accounts (10%), and credit mix (10%). If you want a free credit score computation done professionally and accurately, you may check on the list of the best online credit score services and websites at CafeCredit.
- Pay your bills on time.
It is not very easy to manage utility bills and loan payments every month. But if you can avoid excessive spending, then you might be able to save up enough money for your next monthly loan payment. If you skip even a single payment or if you have been late even just for a day, it will surely have a negative impact on your credit score. Make sure to pay your bills on time to avoid any complications in the future.
- Pay off some of your credit balances.
If you have a lot of existing credit balances, then you can start paying off small balances first. Afterward, you may opt to keep only one or two cards with low-interest rates that you can use for your regular transactions. Doing this will not only improve your credit rating but it will also save you from multiple card fees.
- Keep your past credit histories.
As mentioned earlier, your old credit history can also affect your credit score. Even if your account is not active anymore, years of good credit history with no late or skipped payments can surely help improve your credit score. Avoid closing accounts with good payment histories. Instead, you may keep the credit cards in a safe place.