Your personal credit rating lies passively in the shadows of your finances – until it is time to borrow money. The moment you apply for credit, even preliminary approval, your credit score jumps to the front of the line. The data it contains serves as the primary tool lenders use to evaluate your creditworthiness, so keeping your positive rating intact is the most important thing you can do to qualify for financing.
A good credit score is not earned overnight, yet it is quickly undermined by risky financial behavior. Delinquency, default and foreclosure each have devastating impacts on the favorable credit you’ve built over time, so failure to repay loans should be avoided at all costs. And though these major shortfalls lead to catastrophic credit consequences, there are also less dramatic influences working against your credit rating.
Fortunately, simple tactics help preserve your credit rating, even adding strength to your financial record. If your financial history shows room for improvement, apply these proven schemes to raise your credit score
Diversify Credit Interactions
When considering your loan application, lenders analyze credit relationships you’ve had in the past. To earn approval, it is important to illustrate success managing various forms of credit. Though a timely paid mobile phone contract works in your favor, for example, it only represents one form of credit. To boost your credit score, try diversifying.
Revolving credit enables users to accumulate charges within a predetermined credit limit.
Repayment unfolds according to the terms of each card, which generally allow cardholders to carry balances across billing periods, without paying penalties. Interest is of course added, and grows while balances are outstanding. Installment credit, on the other hand involves steady repayment of a fixed amount of money. Mortgages and car payments fall into this category, enabling each borrower to see his or her entire repayment schedule from the start.
For credit approval and access to the best rates, boost your credit score with a well-rounded suite of successful credit interactions, including examples of revolving and fixed credit.
Manage Balances and Close Unused Accounts
Three primary credit reporting agencies are responsible for sharing your financial data. Though each uses a proprietary formula to evaluate your credit history, their methods are based on similar science. In each case, excessive credit accounts and high balances work against your rating.
Although it is easy enough to remove idle credit accounts from your credit report, striking them requires proactive moves. Start with a look at your reports, to determine whether or not they contain problematic entries. Then, one-by-one, address credit cards, store cards, and other open lines of credit. As a rule, if you have not used a card during the prior twelve months, it is doing more harm than good. In addition to excessive numbers of cards, high balances can knock-down credit scores. To bolster your rating, keep balances as low as possible, never pushing charges to maximum card limits.
Update Credit Information and Limit Applications
Each step you take establishing credit and repaying loans leaves a trail for credit agencies to follow. So while filing a credit application may seem innocuous, excessive requests for credit raise red flags for lenders and damage your credit rating. Instead of casting a wide net, take a more calculated credit-building approach, using a secured credit line to repair a checkered history.
Lenders like consistency on loan applications and credit reports. To put your best foot forward with banks and credit unions, it helps to update credit information. In addition to closing unused accounts, your address should be current with reporting agencies, so that misinformation doesn’t’ work against you at banks and credit unions.
In order to ensure repayment, lenders evaluate risk before issuing funds. Your credit rating not only governs access to financing, but it also shapes repayment terms and interest rates. Mortgages, car loans, energy services and even mobile phone contracts are influenced by your credit score, so preserving a positive rating is essential. By successfully managing diverse credit relationships and keeping your credit reports up-to-date, you’ll boost your score and set the stage for future borrowing.