Knowing how to manage your money effectively is essential so you can build a good credit score. Your credit score shows lenders how creditworthy you are, and is one of the main factors that determine whether you are eligible for financial help, whether that’s in the form of small personal loans, mortgages, and even business loans.
So, how can you ensure your score is good and strong? Read on for a few tips on how you can build and maintain a good credit score.
Pay bills on time
Payment history is one of the biggest and most important factors that determine your credit score, so you must pay all outstanding bills on time to improve it and ensure it remains healthy. You can do this by making loan and credit card payments a priority by adding them to your monthly budget. You can automate loan repayments each month so that you don’t forget to do this manually. Keeping up to date with payments means your credit score will strengthen and you’ll be free of debt in no time. On the other hand, failing to pay your bills on time or defaulting on loans will harm your score which will then be shown to lenders in the future.
Reduce credit utilisation
Your credit utilisation refers to the amount of available credit you’re using – this could be a credit card or line of credit. Keeping your credit utilisation low, ideally under 30% means you can keep your credit score looking healthy, allowing you to build on it for the future. Having a high credit utilisation can have the opposite impact. Lenders will see that you are using a lot of credit and therefore may be struggling with your finances. This, as a result, will be reflected in your score and it will deplete. Keep your credit utilisation to a minimum and your score will benefit.
Avoid opening too many accounts at once
Opening too many accounts or applying for a range of loans at once can have an impact on your score. It shows that you’re desperate for cash and therefore applying wherever you can – which means you’re also more likely to not be able to make repayments. When applying for a loan, make sure you research and compare lenders to ensure you’re getting the best deal before you apply. This means your credit score will remain strong in the future.
Check your report regularly
To build a strong credit score, you should make sure you check your credit report regularly. Mistakes on your credit report, something as small as a misspelt name can cause your credit score to deplete. You should also check that all information is correct and up-to-date, and challenge any information that doesn’t seem right. You can do this by reporting incorrect information to your chosen credit bureau.
Why is your credit score so important?
You might be wondering why your credit score is so important that you have to maintain it throughout your life. Here are a few reasons that you should take care of your credit score:
- Determines creditworthiness: Your credit score helps lenders to determine whether you’re a trustworthy borrower. Your score allows lenders to decide whether you’ll be able to manage your finances and pay back the loan they offer on time and in full.
- Loan approval: A high credit score means you’re more likely to be approved for a loan of your choice, whereas a low credit score makes it more difficult for you to benefit from financial help.
- Interest rates: Your credit score also determines the amount of interest you’re likely to pay on a loan. The lower your credit score, the higher your interest rates will be. Ensuring you keep your credit score strong means you can benefit from lower interest rates.