There are a lot of things people want to concentrate on this year and their credit score should be one of them. If you are still in the midst of trying to figure out how to gain headway in your financial journey, one of the areas you definitely need to focus on is straightening your credit report out or simply putting in a plan to increase your score.
There are a lot of mistakes against credit that people often make that there comes a point it becomes second nature to them and inevitably becomes an accepted financial practice. But this should not be the case because you might find yourself making debt payments for a very long time. You end up having to pay for interest and losing money rather than using interest to earn money.
Much like how you struggled and slaved for exams with all nighters in high school and college to get a good grade, the same concept applies to your score. Though there are no professors or exams that will calculate for your score, you are just up against yourself and your will to get your finances in order. Your desire to meet your financial obligations will reflect in your score.
Investopedia.com explains that your credit score is a statistically computed number by credit reporting bureaus that reflects a person’s specifically a borrowers creditworthiness. Lenders use this to help manage and mitigate financial risk on their part by trying to understand if you will hold up your end of the bargain and pay up as the due date comes. The higher the score, the higher the possibility that you will stay true to your payment schedule.
Get your credit score up
You might still be having a hard time wrapping your head around the idea of a credit score much more the importance of one in your life. Here are a few things that might help you understand it better and hopefully get you moving in increasing that score.
- Identity theft. One of the best ways to protect yourself from identity theft is to be proactive with the monitoring and your credit report, which is the basis for your score can be a big help. As you monitor your report, there is big chance that you get to notice some inconsistencies with your purchases on record and the ones that you actually made yourself. This is one reason you need to keep a record or at least the receipts of all your transactions for a number of months. Try to compare your actual purchases and if you feel there are some amounts that you know nothing about, call your lender immediately. This can help stop whatever illegal transactions are being committed under your account.
- Creditor mistakes. There are also times that your creditor or lender committed a mistake and is still reporting a wrong or an already paid debt in the past. This can severely lower your credit score and make it harder for you to get approval for other loan items. Once you check your credit report and see discrepancies between what is being reported by your lenders against your actual payments, call them up and let them know they need to correct those mistakes.
- Lower rates for loans. The higher your score gets, the better your chances of being approved for loans. On top of that, lenders are more willing to give you a lower interest rate because they are not that scared you will run away with the money. The lower your interest rate on mortgage loans, car loans and even you credit card application, the lower your interest payment will be. You get to save a lot of money down the line with your debt accounts. That is money you can use to invest in funds that can help you in the future.
- Peace of mind. There are a lot of stress factors in your life and if you can manage to handle your finances well, you credit score will reflect that with a high number. If you have a high score, it means that you are able to meet your current financial obligations and you are doing a good job. But this does not reflect the investments and future preparations you need to be making so a high score is a good start and you at least have less things to worry about.
- Higher card limits. There are a lot of people who are able to manage their credit card use wisely and having an increase in their limit is actually a good thing and could help them manage their finances better. Having a high score can help convince card lenders to grant a request for higher limit. There might even be times that because of your good track record in payment coupled with a high score, they automatically increase your limit. This can come in handy when you find yourself in tough financial situations.
- Negotiating power. A high credit score can be used as a great negotiating tool when you are talking to lenders. Apart from pre-approval and low interest rates, they might even be able to throw in some great offers on the table simply because they know you have the track record that proves you make your payments on time every time.
Lower down card use
One of the most constant factors that can affect your credit score is your credit card use. Here are a few things you can do to get your card use to benefit your score.
- Plan purchases ahead of time. Do not go into a store and do shelf shopping and pick out whatever you want. You need to plan your purchases as well as research on the store that offers the lowest prices on the items you are planning to purchase. This helps you plot out your expenses better and prepare your budget for the payment.
- Pay your statement in full. You need to pay the statement in full every time you receive it at month’s end. This is to prevent having to pay up unnecessary interest, fees and other charges showing up in your payment the next time around. Rule of thumb is that if you cannot pay for the whole thing at the end of the month, do not charge it to your card.
- Know how compound interest work. Compound interest is double edged sword in the world of finance and it is up to you on how you use it. You can fall victim and lose money over the course of a few months and even years trying to pay for an ever increasing amount. Or you can use it to earn enough money so you can have a comfortable future.
- Never buy more than what you can pay for. One way to lower down your card use is to put in filters and safeguards along the way. One of which is not pushing through with the purchase if you would not be able to pay the whole thing off at the end of the month or when your statement comes in. This is a good way to prevent over spending and actually keeps you away from all the fees and charges connected to missed card payments. This keeps your score up and puts you in a great financial position with creditors and lenders.
Your credit score is one of the most important financial components that you need to monitor and consistently improve on. You need to know what affects it and how you can make the necessary changes to make sure it does not go down.