7 Ways To Shore Up Your Credit Score A credit rating, or creditworthiness, is used to give money lenders an idea of how likely you are to pay back the loan.
If you are capable of repaying easily, banks will gladly offer larger loans, credit limits, and perhaps affordable interest rates.
So being a high scorer comes in handy when looking to take a lease out on a house, want to start a small business, or just when deciding to compare credit cards.
But the metrics and measures that money lenders use aren’t always obvious and can be a little complex.
So how to boost your creditworthiness with confidence? We’ll be sharing seven of our top tips for doing so below, so read on to learn more.
What Is A Good Credit Score? First, let’s start with a definition of creditworthiness. In a nutshell, this concept revolves around determining your suitability as an applicant who could carry the dues with ease. The credit-handling status is calculated in the form of a credit score or rating.
Top scores vary for every agency and differ among countries, but generally, a credit score should be around 750+. That’ll put you in the top bracket of good spenders, and with it will come the best rates on car loans, home loans, and cards. In South Africa, the specifics can vary, so it’s crucial to know the credit score required to buy a car in South Afric a
On the other hand, if the score dips below the 650-600 mark, that will result in losing out on not just offers and rates, but some of the lending options may be revoked.
Unsure about your credit score can be handled by a polite request for a free bank report to begin building or bettering rapport with creditors.
Now, without further ado, let’s jump into our top eight ways to improve your financial status.
Starting Is Simple The American credit system is simple: show that you’ve been given credit before, and paid it on time.
For most, this starts with opening a credit card. Take some time to check the fees, compare the rewards, and begin using it for usual payments. Pay it off each month and the score will grow.
Other systems, like the Australian system, do not track these positive actions, and instead will only lower the score when they fail to make a payment on time.
Engaging with and understanding the transaction system in your own country helps in making spend-savvy decisions, so take the time to learn to spend more strategically with the bank card.
THINGS TO CONSIDER Couples often sign up for joint loans for bigger investments like buying a house. It is relevant to know each other’s credit score separately including any past default payments, previous loans, or any remaining repayments.
Prepare Automatic Payments Though not all lenders will offer this luxury, automatic repayments are always worth setting up if offered on credit cards and other loan accounts.
If the bank won’t allow these, then average your monthly payments and set up a recurring payment to the lender.
Alternatively, set recurring reminders on your phone, or on a calendar leading up to the due date.
Double Check Your Credit Report Errors are not as uncommon and disputing them is certainly worthwhile for a valuable credit score.
After receiving a bank report, check and recheck the negative actions, and dispute those that seem complex.
The worst case scenario is simply learning the ins and outs of lending, and the best case is having errors removed, and the financial status boosted as a result. Remember, you can also review the score free online
Limit Excessive Spending & Impulse Purchasing If the creditworthiness is suffering, then expenditure is more than affordability which makes it difficult to repay. It’s an easy problem to have, and thankfully, an easy one to solve as well.
Simply look at where the money is going, and write it up in a budget. Then make cuts until the monthly payment is rearranged.
Add a 5-10% allowance for unexpected expenses. If the issue is simply paying without planning, shred your cards, put blocks on them, or avoid situations temptions to overspend arise.
As seen in the graph below and is well-known, individuals with higher incomes will have fewer chances of being defaulters. Therefore, their credit score is most likely to fall in the higher grade. For the middle-class income group, it’s always advisable to maintain a balance between spending and earnings.
Decide On A Debt Plan Debt doesn’t have to be a scary thing and a plan to clear it doesn’t have to hurt either. The first thing to do is to simply acknowledge the owing.
Add up the various bills due and make a list. After this, call a national debt hotline for advice and guidance.
Here are a few of the methods they may share that’ll help you cut down on your debt :
Write up a budget of your income and put it against current expenses. Assess spending and saving habits. Organise debts from smallest to largest. Prioritize making debt repayments. Maintain disciplined (but dynamic) savings habits. By ‘dynamic’ savings habits, we mean that consumers should allow themselves to save in a way that suits their individual needs.
If your earning potential decreases like when taking a car loan or a home loan, chances are the savings strategy requires correction.
Adjust your savings parameters wherever needed to ensure that savings are not becoming a hurdle in living a happy life while spending discreetly.
Lift Your Limits It might happen that unexpectedly losing credit points may require upgrading your limit. The reason is simple – higher limits make debts and missed payments look smaller.
Few would worry if they missed $100 when $10,000 has been cleared. The ratio and balance to keep is a limit that is five times more than the amounts owed.
Or to put it another way, keep the spending under 20% of the credit limit. But if an opportunity arises to spend more, then completely avoid this, and opt for only a debt plan instead.
Keep Old Cards Open Depending on your country, closing accounts could actually negatively affect your creditworthiness. In other words, a long, shaky financial status may be better than a short, neutral one.
If a bank card is not used often, it’s worth keeping it around for a while to show that you’re a careful spender.
Before any of these tips comes the simple rule of paying the bills on time. That’s all a lender wants from their borrowers.
So set up automatic payments, budget and plan, consider alternate payment plans, and ensure that at least make the minimum repayments whenever the bank statement comes through.
That way, you can grow creditworthiness with ease whilst firmly keeping debt at bay.
