Importance of High Credit Score
A person’s credit score that is reflected on his credit report is a vital piece of information. It holds the key to his financial capacity and benefits. Once a person has a negative credit report, this is mainly because he has garnered a low credit score. This would result to loans getting unapproved. If your loans do get approved, expect harsher terms like getting higher interest rates, shorter terms, smaller credit limit, and extra fees to be paid.
Because lenders, would-be employers, landlords, and utility companies based their opinions on you through your credit report, it is important that you have to improve your credit score to achieve better financial impact.
Things you should NOT do if you want to improve your credit score
People with low credit score will have to take necessary steps to improve their credit performance. However, there are some things that they must not do as these are steps that will worsen and give bad impact to their credit report.
Closing Your Accounts
Some people think the best way to eliminate bad credit record is by closing his existing credit accounts. Unfortunately, this step will hurt your credit score all the more. Instead of closing it, you will get better result if you pay off your unpaid balances. Try to maintain the oldest active account even if you don’t use it. However, you also have to be aware that there are creditors who automatically close this once they see that the account has been inactive. Try to use it once every six months and pay off the balance immediately.
Constantly Checking Your Credit Score
Yes, it is right that you have to check your credit report as often as possible so to avoid identity theft and making sure that what is reported in there is accurate but you don’t have to do this with your credit score. The best time for you to check your credit score is six months before you apply for a loan. Once you see that your scores are not desirable, you can take on necessary steps to improve it.
Limit Your Credit Usage
Let’s say you have 3 or 4 credit cards. You have one that you use at all times and is now close to your credit limit while the other 3 cards have none. Remember, almost a third that comprises your FICO score is based on the usage of your credit limit. It is important that with your credit cards, you only use up to 30% of the limit given to you. What you should do is to spread your debt among all 4 credit cards you have, at the same time, making sure that it does not exceed the 30% credit limit on each account.
The FICO scoring system has added a bit of leniency in terms of inquiries made by lenders. It understands that the consumer has the right to shop around for better credit deals, thus resulting to lenders making inquiries. Although it still holds that one should not apply for too much credit. Just focus on how you can improve your score and repair your credit because when it does, you will just be surprised that you don’t go to lenders anymore. Instead, they are the ones coming to you.