Millions of Americans work hard to make their dreams of owning a house, car, or other big purchases a reality. However, many forget that when you are ready to take out a loan for these big investments, lenders will look at your credit score to determine what interest rate you can qualify for and how much you will have to pay back in monthly payments.
Credit scores, also known as credit reports, are out there in the world, and they can be found online or through a variety of community-based credit bureaus. These bureaus keep a record of your payment history each time you apply for a loan or credit card. The information that lenders have on file is what makes up your credit score.
Both Experian and Equifax have their own proprietary information contained within their own scoring formulas that they use to calculate your FICO score, which falls between 300 and 999. This is the score that lenders are most likely to use when making credit decisions.
Reasons to improve your credit rating
When you have a strong credit score, you will qualify for the best rates on loans and credit cards. If your score is poor, however, you will be offered the most expensive option or denied altogether.
Follow these tips to build a good credit score.
5 Tips to Build Your Credit Score
1. Keep Your Payments Current
One of the biggest reasons why credit score decreases is due to payment history. While some late payments are inevitable in life, making a habit of paying late can damage your credit score and make it difficult to get the financing that you want in the future. As long as those payments are being made on time, however, they won’t affect your overall credit rating or payment history.
2. Pay off debt, pay off credit cards and avoid interest
If there is a chance to save money by switching to a cheaper provider, pay off debt or earn higher interest, do it.
Paying off credit card bills within 30 days of receiving them will lower your interest charges, which will have a positive impact on your credit score.
Some lenders offer the ability to see how a credit score affects loan repayments. For example, www.autofinanceonline.co.uk allows you to select ratings from excellent to bad.
3. Examine your credit report (and pay more than minimum credit card debt repayments)
If you find any errors on your credit report, report them to the lender or credit bureau in question. These mistakes can negatively affect how lenders view you as a customer and can also affect your ability to get additional loans in the future.
It is important to make more than the minimum payments on all of your credit accounts. This will avoid you paying interest over a longer period and improve your credit scores.
4. Open multiple lines of credit
A high amount of open lines of credit shows lenders that you can handle multiple debts without being delinquent. Those with few or no open accounts, however, may be seen as risky customers and not quality prospects for loans and lines of credit.
5. Be careful with utilities
Ensure that there are no late payments for utilities, such as electric or gas, to give a good history on those accounts. Bills for these services can often be viewed in your credit file, and they will affect your credit score negatively.
You may be frustrated with your credit score at the moment, but it will all change when you follow these tips. No matter what type of mortgage or loan you are looking for, knowing your credit score will help you get the highest possible interest rate and terms.