Key Takeaways
Credit agencies and lenders calculate a credit rating based on the information in your credit report. Regularly monitoring your credit report is an important step in ensuring you have a good credit score to get offered the best rates.
Why You Should Review Your Credit Report Regularly?
Your credit score ranges from 300 to 900 points, which lending institutions use to forecast your probability of repaying debts. An excellent credit history tells lenders you're financially responsible and efficient in paying your costs promptly. Lots of people do not check their credit reports since they hesitate about what they will certainly discover. Nevertheless, it is very important to frequently examine your credit record and credit score as the info helps you manage and intend your economic life. Your credit score record is a thorough document of your credit history. It contains important information such as your payment history, charge account, exceptional balances, credit score application, and accounts sent to collections due to non-payment.
Other Benefits of Examining your Credit Score, Include:
Recognize Your Credit Standing
An excellent credit score improves your chances of getting approved for loans and charge cards since lending institutions use your credit history to assess your credit reliability. It additionally gives you a much better understanding of your total economic health and wellness so you can take action to preserve or boost it. Examining your credit history helps you recognize where your credit stands and if you should get approved for new credit cards and loans.
View What Lenders See
Checking your credit record frequently shows what loan providers see when assessing your credit score. You'll discover exactly how your credit rating will affect your ability to get approved for a new credit card or loan.
Identify Errors and Mistakes
Inspecting your credit report is vital because personal information, like your social insurance number, phone number, or address, could be incorrect in your credit report. You also want to ensure all debts and payment activity are correct, or incorrect information or fraudulent activity under your credit may decrease your credit score. You may also discover that your credit score is lower than expected. You can identify these errors by checking your credit report and contacting the credit report bureaus, Transunion and Equifax.
How to Improve Your Credit Score
Building good debt requires time; you can't rebuild your credit score overnight. If you have a poor credit rating, getting a car loan or credit card, financing a home or vehicle, or obtaining a job may be tough. However, you can start rebuilding your credit score by doing the following:
Get a Secured Credit Card
An excellent way to rebuild your credit is by applying for a secured credit card. You can obtain one by providing a deposit to the credit card company, so if you don't pay your balance, they will have a deposit to pay it off. If your application is authorized, you'll be provided a bank card account with a credit limit. You can gradually raise your credit limit by utilizing your secured card responsibly and making routine repayments. This process allows you to improve your credit score as the positive activity will appear on your credit report.
Good Financial Habits
If you currently have credit accounts such as a credit card or a car loan, then you should make sure you make all your payments on time, even if it is just a minimum payment. Any missed payments will appear on your credit report for up to 6 years. Therefore, it is best to set minimum payments for your credit cards so you don't have any missed payments.
What factors influence your credit rating?
Payment History
The most significant factor that affects your credit score is your payment history. It demonstrates to your lenders how you have handled bill payments throughout the years. A favourable payment history provides evidence to lenders that you are a responsible individual, and making timely payments positively influences your credit report.
Credit Utilization
The credit utilization ratio holds the second most significant influence on your credit score. This metric evaluates the proportion of credit you utilize with your total available credit. To maintain a good credit score, keeping your credit utilization below 30 percent utilization is recommended. For instance, if your credit limit is $1000, keeping your balance below $300 is advisable. Lenders carefully monitor this ratio as higher utilization negatively impacts your credit score, as you are more likely to default on your debts.
Length of Credit History
Lenders are interested in knowing the duration of your credit usage, also known as the average age of all your accounts. A longer credit history can lead to a higher credit score because it shows lenders that you have a proven track record of managing credit. It is recommended to keep your credit card accounts open, even if you no longer use them actively. This practice helps improve your credit score over time.
Types of Credit
Your credit score is influenced by the mix of credit score types you have, consisting of credit cards, lines of credit, car loans and mortgages. A healthy mix of credit can positively influence your credit report, as it shows you can handle multiple types of debt. It looks positive if you can handle different types of debts.
Credit Checks
Whenever a lender or external party runs a credit check on your credit record, it will appear on the report. If you have many requests for your credit report, that can be bad for your credit score. It shows that you are eager to get new credit, and too many requests means you may have difficulty getting approved, which can reduce your credit score. Therefore, you should minimize the number of credit applications or space them out over multiple months to reduce the impact on your credit score.
How to Build and Keep a High Credit Score
Keep your credit utilization under 50% on each credit card or line of credit;
Make your monthly bill payments on time, even if just a minimum payment;
Understand the potential liability of being a co-signer;
Don't complete too many credit applications at the same time;
Check your credit report at least once a year to ensure no errors.
If you are struggling with your debts, Litvack Group, as a Licensed Insolvency Trustee, would be happy to have a Free Consultation to discuss your financial situation and circumstances and review your options for debt relief. Contact us today!