Many financial institutions use your credit score to determine whether you qualify for a loan and also to set the terms and conditions for a loan. A credit score is a number based on your credit history, and which determines your creditworthiness. Having a higher credit score puts you in a better position to secure loans or credit credits at lower interest rates.
Improving your credit score is a process that requires commitment. Here are some steps that will help you improve your credit score.
Check Your Credit Report for Errors
According to the Federal Trade Commission, approximately 5% of consumers have errors in their credit report that negatively affect their credit score. Most credit errors are a result of human error caused by either the consumer or lender.
It is essential to get a copy of your credit report then analyze it for mistakes. Scrutinize payments marked late when you know you paid on time or negative information that may be too old to be listed.
Stay Within Your Credit Limits
The most common factor that impacts your credit score is your credit utilization. Credit utilization refers to how much of your credit card limit you use. According to financial experts, if your credit limit is $2000, you should only use about 20% to 30% of it. By doing this, you will be staying strictly within your credit limit, which will improve your credit score.
Here are some simple tips on how to manage your credit limit
Make several small payments:
This should be done to lower your balance. You must make small payments each month. These small payments are commonly known as micropayments.
Request a credit limit increase:
Whenever your limit is raised, and your balance remains the same, your utilization is lowered. You may contact your lender and request higher credit limits without a “hard” credit inquiry. Hard inquiries temporarily reduce your credit score.
Ensure That You Pay Your Loans on Time
Other than buying tradelines, another way to improve your credit score is to make sure that you repay your loans and credits on time. This will, in turn, reflect on your credit history, which will significantly influence your credit score. Missing payments also stay on your credit report for about seven years, which negatively affects your credit score.
Benefits of Having a Good Credit Score
Having a good credit score not only makes your life easier but also helps you save money. Here are some other benefits of having a good credit score.
Lower Interest Rates on Loans
Interest is the additional amount you pay when repaying your loan. The less money you spend on interest, the faster you will finish repaying your loan. A good credit score will attract lower interest rates, whereas a poor credit score attracts high-interest rates.
More Negotiating Power
With an excellent credit score, you will be able to settle for a better deal from your lender. This may include lower interest rates or a lengthier duration for loan repayment. Nonetheless, if your credit score is poor, you will have strict terms and conditions from the creditor with little to no room to negotiate.