Every now and then we hear about the importance of credit score and the implications it has on our financial stability. Most of us are assured that having a good credit score is necessary for getting loans, but only a few know about how the mechanism works and what a “good” credit score is.
Before going into the depths of credit score computation, you must know what it is all about. A credit score is a three-digit value that showcases your ability to repay debt. Thus, banks and lenders are able to know your standings as a person credible enough to provide loan too.
Currently, there are three main credit bureaus that develop your credit report- Equifax, Experian, and TransUnion. These bureaus calculate your credit score depending on their proprietary models. They judge you by your payment patterns and the number of accounts you own in good standing.
Now, these institutions rarely project the same score, but there are certain points to remember for getting score possible.
Stay in check with your credit card balance
A credit score is majorly affected by the difference between the revolving credit you have and the amount in actual usage. The smaller the gap, the better is your credit score with the optimum value being 30 percent or lower. In order to boost your score try to pay down the balances and keep them as low as possible. In case you have numerous credit card balances then they can be consolidated with a balance transfer credit card or personal loan.
Setup payment reminders
Again, you cannot pay your monthly installment in time without a proper plan. It is always better to set up a system of alerts every time a due date gets close. Many banks and lenders provide the extra service of updating you with your schedule commitments. Moreover, you can also opt for automatic payments from your bank account to your creditors. However, the approach only pays the minimum amount on your credit cards and does not evolve the sense of money management.
Getting on track after late payments
It’s no wonder that even the most disciplined individuals pay late bills for one reason or the other. But, one must not get disappointed as FISCO scores are based more on current performance and less on past failures. Just keep in mind that you have to keep up with your schedule even if you fail once. With time FISCO will stop taking past botches into consideration, and your score will rise again.
Be super focused on your credit score whenever you are in a situation needing credit. In the meanwhile, pay your bills in time and manage credit responsibly. The smart payment behavior will get reflected on your score no matter what. Although, your lender might not be using the score as the only judging platform yet your recent performance will have a positive effect on their decision.
The only way to stay updated about your credit score it to get a copy of your report from all the three score providers every year. It is advised for you to manage at least six months of profound payment patterns before asking for the loan.
Keep risk away
It is often seen that keeping risk away is the sure shot method of improving your credit score. Any activity that can potentially sink your earnings is the last thing you would want especially when you are in need of credit. Even a single missed payment will suddenly change the stats, and you will have to start over again. Don’t use your card in businesses where future money stress is possible. Rather than hoping for a massive gain try to step away from risky endeavors.
Thus, keeping up with your credit score is as hard as easy it seems in theory. The majority of the population is facing penalties and charges for late payments over their debts. Hence, improving a credit score is much easier than maintaining a good one. We hope that you are able to imply the above-stated tips to not only boost your score but also become financially stable. It is the right time to manage your expenses and pay to everyone including yourself.