Your credit score is used by lending institutions as an indicator of how likely you are to pay off a loan. As banks and credit bureaus don’t know you at a personal level, they determine if you should be extended a line of credit or a loan based on your credit score, which is based on your debt repayment and bill payment history and certain other parameters.
If your credit score is running low, you may have difficulty getting a credit card or a new loan if the need arises. If you do get a loan, you are likely to be charged a high rate of interest owing to poor credit rating.
3 Positive Habits to Improve Your Credit Score
Here are three tips to bring up your credit score by imbibing positive and responsible financial behavior for the long term.
Control your credit card balance
The golden rule is to have as little revolving credit as possible. This means that you should make it a habit of paying off your entire credit card balance every month and not let it roll over to the next month. This in turn means gradually reducing your credit card spending and trying to live within your income.
By cutting some unnecessary expenses, you’d be able to reduce your credit card usage and thereby your rollover balances. Also remember that it’s better to have only one or two credit card balances show up on your credit report.
Start paying your bills on time, every time
Unpaid bills and payment defaults weigh heavily on your credit report, and even a single missed payment can hurt your credit score. Making on-time monthly payments is extremely important if you want to improve your credit rating. So make it a habit to put aside cash to pay all your bills before using it for shopping, leisure activities and other secondary expenses.
Another common factor that harms a person’s credit score is too many loan applications. Every time you apply for a credit card or loan, the lender performs a hard credit inquiry to ascertain your credit history. Too many inquiries of this nature done in a short period of time could damage your credit score, as they’re considered to be an indication that you want and need more credit.
If you need fast cash to meet an emergency expense or, say, to fund some of the costs of a wedding or a long-awaited vacation, you can apply for secured or unsecured personal loans with horrible credit, as some private lending companies don’t consider the applicant’s credit score when approving a personal loan.
Keep tab of your credit report
Last but not least, be prudent and proactive in checking your credit report and fixing any erroneous or missing information that could be affecting your credit score. You are eligible to get a free copy of your credit report once a year from the credit bureaus.
Go over your credit report carefully and if you find any inaccuracies, report the issue to the bureau and have it fixed at the earliest.