Important Tips on Building a Good Credit Rating
A good credit rating or a credit score is a statistical number that is used to evaluate a person’s creditworthiness. Simply put, this number tells a creditor or lender whether you are a responsible borrower. This score is calculated using your credit history. The scores usually range between 300 and 850 and the higher your credit score, the more responsible you are considered to be.
A good credit score is critical nowadays. We don’t use credit just for loans anymore; a lot of businesses now look for a good credit rating before extending their services or products to you. The thing is, you don’t get a good credit rating overnight. It’s something you need to constantly maintain and work at.
So, here are a few tips to help you maintain a good credit rating:
- Apply for a Secured Credit Card
If you are looking at building a good credit score, then the first thing you should do is get a secured credit card. What a secured credit card does is it keeps a check on how much you spend. Your credit limit is based on your bank balance and your previous credit history, so you can only spend as much as you have.
This kind of a card is more like a starter card, so that you can build up enough good credit to then apply for an unsecured credit card.
- Maintain a Good Bank Balance
One of the biggest factors that influence your credit card rating is your bank balance. Credit ratings increase when you have more saved than what you spend. The higher the difference between how much you spend and how much you have in your bank account, the better your credit scores will be.
- Only borrow as much as you can repay
Always ensure that you never borrow more than you can pay off. If you ensure that you can easily pay off whatever you borrow, it shows that you are a responsible borrower and this will be reflected in your credit score. This means that people will trust you when giving you loans, which means you will more easily get the loans you need.
- Make sure your bills are paid on time
Paying your bills on time has a positive impact on your credit scores. Not just your credit card bills – all your bills. Your credit rating is hugely impacted by whether you pay all your bills on time. Bills that are unpaid are often sold to a collection agency, which then reflects on your credit rating.
Don’t max out the limit on your credit card. Always try to keep your credit card as empty as possible. If you have to have a credit balance, make sure that it is always less than 30% of your total credit limit. This will again reflect well on your borrowing habits.
- Avoid opening up too many new accounts together
One of the things that creditors look for is the length of time you have used a particular card. If you open too many accounts all that the same time, you will have little or no history to show your credit worthiness. Try and keep you credit card account open as long as possible. The longer your good credit history, the better you score will be.
Maintaining a good credit rating is just a matter of being disciplined and being financially responsible. The benefits of a good credit are so many that it actually reduces the stress and worry in our lives.