Whenever you apply for a loan, credit card, or utility service, the first thing that the lender or provider would check is your credit history. Basically, your credit score serves as the most useful tool in determining your future payment behaviour to the company. So if you were always on time with your past bills, there’s a higher likelihood that you’ll get accepted for the new account, but if you were always late, or always maxed your credit limit, your odds won’t be that great.
There could be a valid reason why you missed your due dates before, unfortunately, lenders would rather predict your future financial activity rather than listen to your defense.
What Can Help Improve Your Credit Score?
Fortunately, negative entries on your credit report fall off after a certain period of time, but it isn’t wise to wait that long, especially if you’re looking to apply for a major loan in the near future. By observing the following, you can significantly improve your credit more quickly.
On Time Payments
The timeliness in which you pay your bills has the most significant impact on your credit score. While there are various factors that determine credit scoring, your payment activity makes up the most of it, and thus is the most crucial to observe. To keep a healthy credit, be sure to pay on or before your due dates.
Old Age of Credit
The age of your old accounts will also affect your credit score, as essentially, it proves how long you have had experience with handling credit. In short, the older your account is, the better for your credit score. The best way to maintain the average age of your credit is to keep on using your older accounts, and refrain from opening new accounts, unless utterly necessary. If you’re in the middle of credit repair, it’s best to postpone loan or credit applications for a while, as you most likely won’t qualify anyway.
Variety in the Accounts You Own
Credit reference agencies will also base your credit score on the types of account that you own. Basically, there are two types of credit- instalment and revolving. Instalment credits are those which you are bound to repay in equal instalments within a certain period of time, such as your mortgage and auto loans. After complete payment of the loan balance, the account will simply end. Meanwhile, revolving credits are those accounts that do not expire, but rather you are given a certain credit limit which you can use repetitively as long as balances are paid. The perfect example of this is your credit card. It pays to have both types of credit in your credit history, as this will indicate that you can manage any type of account.
Credit utilization is simply the ratio of your balances to your credit limit in your revolving accounts. The closer your balances are to your credit limit, the higher your credit utilization will be, which is not good for your credit rating. As much as possible, keep your balances to a maximum of 30% of your limit. To make it easier, you can either request for an increase in credit limit or simply pay off your balances every time.