How To Build A Good Credit Score?
Your credit score is calculated on a formula which uses values from a number of factors and characteristics. Ranging from the amount of outstanding loans to your past use of credit cards, it can be difficult to know how to build a good credit score or correct a bad one. It’s much easier to begin as you mean to go one and follow some core principles which will help construct a good financial reputation, rather than trying to improve upon an already negative credit score.
What affects my Credit Score?
Your credit score is affected mostly by your payment history and your outstanding debt. Missing payments or breaching financial contracts will have a negative impact, whilst a large balance owed in credit cards, loans and mortgages can also work against you. Other factors include your credit history, the variance of your credit types, the amount of inquiries for credit made (by the consumer and lenders) and also your recent applications.
What should I do to build a good score?
Building a good credit score is largely down to common sense. One of the most effective ways to build a credit score positively is to stick to a rigid bill paying schedule, paying them before their due dates to avoid any red letters and always paying the outstand balance immediately. A lesser known technique of building a good credit score is also to ensure that at any given times, you owe no more than a quarter of your current credit allowance. For example, if all of your credit cards and loans combine to make a total of $50,000 available credit; you should owe no more than $12,500. If you complete the repayments on one format and your available credit drops to $30,000, you should make sure that you owe no more than $7500.
Your employment history can also have a large impact on your credit score, so do your best to avoid any employment gaps on your professional record. In the eyes of a lender, those who don’t maintain a steady course of employment are at a far higher risk of being unable to make their repayments. You should also keep the number of inquiries that you make for credit as low as possible, as these all count towards your credit score and can point towards a struggling bank balance.
What should I do to avoid a bad score?
To avoid a bad score, you can follow the same common sense route and try to avoid doing the opposite of what is listed above. This means not making late or partial repayments, using more than three quarters of your available credit, being out of work or making too many credit inquiries. Your credit score can also be negatively affected by fiscal information on public record such as tax liens, foreclosures and bankruptcy; so do your utmost to avoid these.