Your credit score determines a lot, from low interest on loans to premium credit cards. But with any credit rating, there comes the cost of maintaining it. Keeping a good credit score is indispensable in achieving your financial goals. Learn how to achieve an excellent credit rating using this guide and seven action tips to maintain an excellent credit score.
A credit score represents a numeric rating showing your creditworthiness. Lenders rely on it to assess the level of stability you possess in terms of being able to repay your loans. The better your credit score, the less chance you'll have of defaulting. Becoming a good borrower most often results in favourable terms, even lower interest rates and larger loanable amounts. Conversely, a low credit score may lead to paying a higher rate of interest, getting a small amount to borrow, or even denial of loans.
1. Pay your bills on time: Late payments could harm your credit score. Avoid this by setting up automatic payments and reminders, and using monthly planners that ensure all the invoices are paid before the due dates. Making timely payments is one of the most important factors in having a good credit score.
2. Check your credit report regularly: Monitoring your credit report enables you to detect flaws or inaccuracies that may impact your score. Look for errors in such reports, as erroneous personal information or unrecognised transactions may affect your credit score. Once you discover errors, dispute them as soon as possible to ensure that they are corrected.
3. Lower the credit utilisation: Your credit utilisation ratio — the percentage of credit you use in comparison to your overall credit limit — should ideally be less than 30 per cent. Spread expenses over multiple credit accounts to decrease the pressure on a single card. This makes it easier to hit better utilisation ratios, demonstrating to lenders that you are responsible with credit.
4. Keep a balanced credit mix: A good credit mix consists of a mix of secured and unsecured loans, which will also enhance your score. Since secured loans pose less risk to lenders, they are actually indicative of financial responsibility, and any diversification, therefore, preserves a good credit score.
5. Limit new credit applications: Be cautious not to apply for several loans or credit cards simultaneously. Lenders may interpret this as indicative of poor financial stability. Each application yields a hard query into your credit, which will generally lower your score until resolved.
6. Low usage of credit limit: Exceeding your credit limit increases your credit utilisation per cent, and it might lower your credit score. Therefore, if your spending will most probably exceed your current credit limit, consider getting a higher limit from your bank instead of overextending it.
7. Avoid closing existing accounts: Avoid closing old credit accounts or cards because they help to build a longer credit history, which is important in establishing your credit score. Keeping these accounts open demonstrates your dependability and long-term relationship with lenders, which helps to maintain a solid credit score.
Maintaining a high credit score is critical for financial stability. You can considerably increase your creditworthiness by continuously paying your bills on time, keeping your credit utilisation low, and constantly monitoring your credit report. Remember that developing a great credit history requires time and dedication, but the benefits are well worth the effort.
