One of the goals you can aim for this new year is to take care of credit score better. Once you do, it will open up a number of financial benefits for you. For one, you can be eligible for a lower interest rate when applying for different types of loan. This is because lenders do not see you as high-risk borrowers so they do not need to apply high-interest rates on your loan.
You also get a higher chance of getting approval on credit card or loan applications. As a bonus, a high credit score can also get you approved for higher credit limits. This is a great benefit especially if you need a higher one for a big purchase. Of course, you need to make sure that you pay off these charges in full every time.
If you take care of credit score better, you might also enjoy lower auto insurance. This is because auto insurers have joined the list of companies that use credit scores to assess the risk of a client. Time even shares that people with a higher credit score has a lower tendency to get into car accidents costing car insurance companies less. This is why the higher your score, the higher the probability that you will pay a lower premium for car insurance.
You can even save on security deposits on utilities when you have a nice credit score. These deposits can be anywhere from $100 to $200. This can be an inconvenience when you are relocating or when you have to move due to unforeseen situations in life. With all these benefits, it really makes a lot of sense to improve your credit score. Here are a few things you can look into to achieve that goal.
Pay your bills on time
This is one of the best ways to take care of credit score because your payment history plays a big part in your score computation. There are ways to deal with late payments but the idea is not to be in that position. You need to make sure that you pay your bills on time every time because late payments pull down your score significantly.
There are a few ways to help you manage your payments better. One idea is to set up your alarms to help remind you of your pending due dates. You can use your smartphone or even your computer to set up a recurring alarm. This will be helpful especially if you always have your smartphone with you or you always work on your computer.
You can also choose to consolidate your loans under one account. This will make it a lot easier for you to manage your payments since you will only deal with one amount. It means that it will be paid on only one due date. It is a good idea to consolidate your debts to help you manage fewer obligations. The lesser they are, the lower the chances that you will miss a payment.
Keep credit utilization low
One of the ways to help you properly take care of credit score is to ensure that you manage its usage. One of the factors considered when computing for your score is credit usage. Experian shares that it is recommended to keep credit utilization below 30%. If you use too much, credit reporting bureaus might think you cannot pay it off quickly and lower down your score.
If you have a credit card with $10,000 and you use $3,000, your utilization ration is at 30%. This is the ideal ratio you need to work with. Apart from helping you with your credit score, making a habit of charging only a percentage helps you manage your payments better. The smaller you have to pay, the higher the chances you can pay everything off every time.
Charge only what you can pay off
Much like keeping your credit utilization ratio, you need to charge only what you can pay off. Even if you only charge $3,000 on a $10,000, is it an amount you can pay in full at the end of the month? Yes, your utilization ratio is great but that will be nothing if you miss your payment. This makes it all the more important to watch what you charge than staying within the 30% ratio.
For one, you have to monitor your credit card purchases to take care of credit score numbers. The simplest way to do that is to not spend more than what you can pay in full at the end of the month. Yes, that minimum payment is so much enticing because you pay only a fraction of what you owe. What you may not realize is that lenders will start charging interest and fees to your monthly statement if you choose to pay only the minimum.
You can still pay the minimum amount but it should not be your first option. There may be instances when you have a hard time on some months and you can only afford to pay the minimum. That is acceptable because you still get to meet your payments and your credit score does not go down. You just have to watch your credit usage because if it is already over 30%, paying minimum will not help bring it down.
Create a spending plan
If you are really serious and want to take care of credit score actively, you need to have a realistic budget plan. This will help give you an overview of what you can spend every month. Apart from understanding how much your income is, your spending plan relies heavily on your budget. It guides your every financial move.
For your budget to work, you need to be very thorough with every detail. List down all your financial obligations. It should include utilities, subscriptions to any services regardless of how small it is, and all your debt payments. Beside it, list down all your income sources and make sure you include every single source.
Apart from your day job, you might have other sources of income. Do you have a hobby that you are earning off from? It can be a weekend job like baking or even covering events as a photographer. Do you have any passive incomes bringing in some money every month? All these should be included in your budget. It does not mean that you have to spend them all but it is best to know how much you really have.
Negotiate your payments
One of the things you might not have thought about last year is negotiating your bills. TIme shared an article saying that almost 90% of credit card holders who requested for a late fee to be waived were successful. It is not to say that you can be late in sending in your payments and just request for the fee to be waived. You are still responsible for your own financial obligations and you have to make sure you attend to them faithfully.
One thing you can request for is lowering down your interest rate. You can even call other insurance companies and explore a lower premium. If you are successful, you get to take care of your credit score better because you have lower payments to worry about. You increase the chances of meeting all your payments on time. The worst thing that can happen is they say no.
To take care of credit score more effectively, you have to make sure you are making smart financial decisions. This will help you stay on the right path and improve your finances for the better.