How to Manage your Credit Score
14 April 2020
If you live on credit then you must be aware that managing your credit score can be a daunting task. Improving your credit score is like weight loss, it takes time and doesn’t happen overnight. There is no quick way to improve your credit score. If you come across anyone that claims to make your credit score better in a short period of time, then beware of it, it could be a scam.
There are certain things that you can do to manage your credit score, such as managing or paying all debt on time. Your credit history has to be repaired in order to see any credit improvements. Since credit scores are based on your past behaviors, which are recorded in your credit report, it will take time for it to improve.
Credit scores are calculated by credit reporting agencies, such as Experian, Transunion and Equifax. These scores vary depending on the credit information each agency uses. Credit scores are used by prospective lenders, as well as insurance companies, as they find credit scores helpful to determine the financial behaviour of each person. Moreover, employers and financial institutions also check credit scores to discard undesirable candidates.
Here are some tips to help you in managing your credit score. You can also use these tips to help you improve your credit score.
- Maintain your credit card balance
An important factor that makes up a credit score is how much of your credit is available in comparison to how much you are actually using. This percentage has to be smaller in order to get a better credit rating, 30 per cent or lower is the optimum. In order to improve your score, you must always pay the balances, while making sure that the balances remain low. People with multiple credit card balances can improve their score by a personal loan or balance transfer credit card.
- Pay on time
The biggest component of your credit score is the on-time monthly payments. Credit scores are made from your credit record. If you do not pay your bills, or don’t pay them on time, then your credit will be damaged and your credit score will be affected. Today, many banks offer payment reminders, whether by email or SMS, when your payment is due. You can also consider setting up automatic debit order payments for your credit cards or loans, to automatically debit from your account. While this will only make the minimum required payment on your credit card, it doesn’t encourage you to learn money management skills.
- Reduce your debt
This is easier said than done. However, reducing debt is very effective and even a bigger achievement than improving your credit score. One tip is to reduce the use of credit cards as you aim to minimise your debt. Don’t cancel your credit card accounts altogether, as your credit score depends upon the number of credit lines you have, provided they are in a good position. Another factor is the time period for which they have been open. You can manage your debt by having a report of all your accounts and then check how much you owe on these accounts and what interest rate they are charging you. Then devise a payment plan of paying the highest debt payments first according to your available budget in the meanwhile maintaining fewer payments on other accounts.
- Old debts on your report
Many people believe that having old debt on a credit report is bad for their score. Once they have made the repayments of their homes or cars, they want it removed from their reports. While negative items are bad for the credit score, they will be removed from the report after 7 years, but removing the old accounts that have been paid off from your report is a bad idea. Good debt is the one that you have correctly managed and paid off on time. It is considered good for your credit score. If you have a longer history of good debt then it will help your overall credit score.
To improve your credit score, make sure to keep the old debt and good accounts open for as long as possible. You should always keep the accounts where you have a solid payment record active.
- Deal with credit problems
If you have previously struggled with bankruptcy or have accumulated debt over time, then it might take years to discard this history from your credit record. Always record the time and month this data should be removed from your report and when the time comes, make sure that the removal happens. A bad credit record badly affects your credit score.
- Lower the credit enquiries
Credit enquiries that are done by potential lenders, whether they are solicited or unsolicited, lower a credit score. It includes the mortgage companies from where you get pre-approved or department stores that provide you with 10 per cent off when you use a charge card. It also includes the unsolicited offers that you receive in the mail by the credit card companies.
- Track your spending
If you haven’t done this yet, then this credit cycle you must start or at least attempt to track your credit card spending. You can use simple paper, a spreadsheet or money management software. Whatever tool you prefer, it will provide you with a record of your spending and also the forecast of the bill you are going to get. You can check your card’s activity on the issuer’s website. Remember you have to plan in accordance with the payment you have to make.
- Credit counselling
If you are bad at making ends meet, then you should seek help from your creditor or a credit counsellor. Though it won’t revive your score immediately, your score will increase over time once you manage your credit and pay it on time. Getting help from a debt counseling service will not hurt your credit score. It is always better to get help and make the things work if you are failing at managing your credit accounts.
Once you are able to maintain your credit score, it will get easier for you to improve your financial stability.
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