How To Build And Maintain A Credit Score

Jul 23, 2020 | Finance, Finance 101 | 0 comments

Finances are a huge part of our lives. Learning how to manage them makes a difference in the smooth running of our day to day life. Many aspects affect our finances, some of them are out of our control, but whether it is planned or not, knowing how to keep a healthy credit score makes all the difference. Unfortunately, if you do not maintain a healthy credit score, it could likely affect you negatively in the long run. Managing your bills and spending within your means makes all the difference between a financially successful life and one filled with struggles. Here is how to build and maintain a credit score.

What Is A Credit Score?

The idea of a credit score is to rate an individual by the likelihood of paying the bills on time. Ranging between 300 and 850, a credit score will depict a consumer’s creditworthiness. The higher the score, the better your chance of benefiting.

Your credit score is based on the accounts you currently have open, the total amount of debt and your repayment history. The better your credit score, the more chance you have to qualify for the best interest rates and lower finance charges on credit card balances and loans. Receiving a lower interest rate makes the debt faster to pay off, and the more money you have for other expenses. 

Dedicate time to improving your credit score. The key step in any financial application is the applicant’s credit score. 

What Is A Credit Score Used For?

Lenders refer to an individual’s credit score to evaluate whether or not you will repay the loan promptly.  Sometimes due to circumstance, your credit score gets tarnished. No need to worry, there are quick and easy ways to raise it again. You can expect a raise within one to two months, but this depends fully on what brought the score down. Some judgments can last up to 10 years.

Remember to never spend above your means and to have a financial plan in place to playback any loans you have taken.

how to build and maintain a credit score

What Affects Your Credit Score?

In order to learn how to build and maintain a credit score it is important to understand what factors affect it. To help you understand what a credit score is made up of, we have a fantastic breakdown that will give you a clear picture of what you need to focus on to up your score.

  • Payment History: 35%
  • Amounts Owed: 30%
  • Length of Credit History: 15%
  • New Credit: 10%
  • Types of Credit in Use: 10%

Payment history is the main factor affecting your credit score. On-time payments make all the difference in your credit. Make sure you keep on top of all your payments by switching from manual to automatic transactions, which will take away any room for errors.

There are two kinds of debt, there is Installment credit and Revolving credit. Installment Credit refers to per month payments that reach an endpoint, for example, a car payment, student loans and personal loans.  Revolving Credit refers to a loan that has a monthly limit and can be paid back with a minimal payment, such as a credit card or home equity loans.

How To Build A Credit Score With No Credit. 

Starting off can be tricky. No one really seems to know how to get the ball rolling. Don’t be overwhelmed, try one of these four steps to get started. 

  1. Pay student loans. – Student loans allow people access to finances to further their education. Use this loan as a way to prove that you are worth the risk. Pay it back diligently.
  1. Take out an auto instalment loan. – Instalment loans are one of the easiest loans to get. Look at buying a car or taking out a cellphone contract, no matter the choice, make sure you shop around first, to make sure you are getting the best deal. 
  1. Obtain a secured loan. – Getting a loan can be difficult, but once it has been obtained you can be sure to get a good base score. Making sure this loan is paid but monthly and on time, is the next step. Ask someone to co-sign a loan for you. 
  1. Ask one of your monthly payment recipients to report your positive payment history to the credit bureaus. – Ask someone you are paying every month to report that you are diligent with payments and have got a good payment history. The best advice would be to ask your landlord or utility company.

Maintaining A Good Credit Score

Rate your credit scores by looking at the following table: 

580 to 669Fair
670 to 739Good
740 to 799Very good
800 and upExcellent

Focus on decreasing your utilization rate to improve your credit score, and if your credit is already positive, consider asking for a credit limit increase from your credit card provider. A credit utilization ratio is based on the comparison between the total amount of credit available to you versus the total amount you are using. A credit utilization ratio of 30 percent or less is considered good by lenders and financial bureaus; the lower the ratio the better it is for your credit score. 

To maintain a good credit score focus on the following

  • Pay Your Bills on Time. – Showing you are able to plan your finances, positively impacts your credit score. 
  • Pay off what you can on credit cards and keep your credit card balance low. – Always make sure that you pay back what you can, by accumulating the debt and letting it add up causes problems in the long run.
  • Don’t Close Old Credit Cards. – Having credit is a good thing. By keeping old credit cards open, it shows you can maintain your money for long periods of time. 
  • Manage Your Debt. – Any debt you may have needs to be monitored. Always speak to those involved if an issue does arise. Communication is key.

Give Credit Where Credit Is Due. 

Staying on top of your finances may seem like a full-time job, but once you understand the best practices, you will live a life of clear credit. A healthy credit score will help you in the future by buying houses and taking out loans. So it is important to gain a proper understanding of how to build and maintain a credit score that will positively serve your needs.

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