How to improve your credit
We all know that having good credit is the key to getting an interest rate that we can live with on the loans that we apply for. When the loan is for a house, an interest rate with only a percentage point of a difference can add up to hundreds even thousands of dollars over the course of the loan. Improving your credit is a huge opportunity to prevent being a slave to your debt payments.
Improving your credit is simple in concept. However for many the lifestyle and habitual changes that will need to be made are just too difficult to overcome. With time and determination, anyone can improve their credit score. Here are some of the best ways for how you can improve your credit score.
Steps to improve your credit
- Leave credit accounts open to create a history of credit use - Credit to debt ratio is calculated by looking at all of the debt that you could have available to you (credit limits) and all of the debt that you are actually using. When this ratio is high, it is an indication that you are someone who can exercise self control and pay off debts. If this ratio is low, it sends a negative sign that you cannot live without borrowing as much money as you are able. Simply leaving credit accounts open for a long time, even if they are rarely used, can increase your ratio and build your credit history.
- Make payments in full and on time - The best way to establish a good credit history is to make payments in full and on time. This may be a disappointment to those who are looking for a way around being responsible with their money. However, the fact of the matter is that a credit score reflects your credit worthiness and if you are not credit worthy your score will be low. Even if you have a terrible credit history, it is not too late to make changes now. The sooner you start rebuilding your credit, the better.
- Establish stability - Lenders who will be looking at credit scores want to know that you know how to handle money, but they also want to know that you can handle your payments in a consistent manner. Someone who borrows money and has to scrimp and scrounge or borrow from friends to make a payment is not going to be as smiled upon as someone who is consistent in budgeting, in their employment, residency, payment history, etc. You may not be the best money manager in the world, but if you can show lender that you are consistent in how you make, spend and repay money it will improve your credit score.
- Evaluate your own weaknesses - You may have read through these suggestions and thought to yourself that you are doing everything that you should and are still not getting the credit score that you feel reflects your credit worthiness. Sitting down and talking with a financial planner can be a big help in determining if there are any specific setbacks and adjustments that you can make to improve your own credit score weaknesses.
Remember that credit is only good when you can handle the payments and exercise self control regarding what it is that you decide to buy with credit. Having lots of good credit accounts is good. But letting even one of those credit accounts get out of control can be very bad. Start small by eliminating as much debt as possible and only accruing the debt that is absolutely necessary.