Four Simple Habits That Build Good Credit Score
A good credit report or rating doesn’t happen by accident, and it’s not about manipulating the systems. So, an exceptional credit score is often the result of multiple intelligent decisions. Good credit habits, i.e., paying bills on time, can help you achieve and maintain a higher credit rating—and provide benefits that come with them.
Good Credit Habits to Practice Every Day
To keep your balance or credit in good shape, here are four essential habits to practice every day:
1) Paying Bills on Time
The most important thing to maintain an excellent credit history is paying your bills on time. Payment history represents the largest share of your FICO Score and is considered an essential part of your VantageScore. To ensure that you don’t miss regular payment deadlines, establish automated monthly settlements for at least the minimum amount owed. Also, it would help if you consider reviewing the credit and repaying bills within a month instead of waiting for the due date. Remember that payments delayed for more than 30 days can remain on your credit history for seven years.
2) Manage Your Credit Utilization at Low Values
The overall credit utilization measures your account balances compared to your credit limit. Here is how it works:
- Add lines of credit across all your bank accounts to find affordable credit.
- Add up any debit card balances.
- Divide the total balance by the available loan and convert it to a percentage to get the loan utilization ratio.
When it comes to credit ratings, the lower your CU ratio, the better. Typically, keeping your utilization rate below 30% will prevent harm to your credit score; people with the highest credit ratings tend to have low single-digit credit utilization rates.
3) Check your credit score regularly
It’s always good to determine where your credit rating stands and how it changes—it helps you understand how your actions impact the credit reports. Beyond this, scrutinizing your credit history can help you find any troubles that may be brewing and turn-around program if you’re getting off track. If you are in the process of improving your credit history, increasing your scores is excellent positive feedback.
Furthermore, you should also check your credit report periodically. This not only helps to detect any negative or inaccurate information (that may arise) but also ensures there are no new accounts you have not applied for—this could be a sign of identity theft.
4) Apply for New Credit Only When Required
Having multiple accounts and credit combinations is good for your credit score. This signifies to the lending companies that you know how to manage various types of loans.
However, too many loan applications can reduce your creditworthiness. Every time you apply for a home mortgage, the lender will ask for your credit report, which is known as a hard inquiry. While a thorough investigation might result in a small and momentary drop in your credit rating, a few recent applications can have a significant impact on your credit. More so, a constant stream of complex queries might trigger lending institutions to consider you a serious credit risk.
When applying for a new loan, make sure you understand the creditworthiness and apply for a mortgage only when you think it has a good chance of being approved.