(Newswire.net — February 4, 2020) — Credit ratings are how the money lenders of the modern world determine the worthiness of a borrower. It is based on how diligently a borrower has been able to meet credit agreements and pay off debts in the past.
A bank will not give out a loan to someone who has a history of not making payments on time or not being able to meet the payment requirements at all. The worse your credit rating, the more difficult is it to secure a loan to buy the car that you wanted or to go on a vacation.
Having a bad history of payments on loans makes it very difficult to get loans to start a business. It is hard to obtain working Capital Loan with Bad Credit.
A better credit score will also allow you to enjoy better interest rates and lower finance charges. It will also allow you to borrow more than you would be able to without it. From buying a house to getting a new phone, good credit ratings make life a hell of a lot easier.
In this article, you will learn about the different things that you can do to maintain a good credit rating.
Develop an understanding of credit ratings
Knowing your enemy is half the battle. In this case, your enemy is a bad credit rating. Individuals and entities are assigned credit ratings by credit rating agencies like Moody’s and Fitch. A credit score is maintained on all listed or known borrowers. Whenever anyone requests a new loan, their history or credit score is checked, and credit terms are determined based on that credit score.
An individual’s credit score gets on the record upon the acquisition of their first credit card. Considering how scarily early most people get credit cards, it can be daunting to maintain a credit score since it can affect huge aspects of life. This includes, in some cases, getting a job and even finding a place to live.
There are different markers and data points used by credit rating companies to determine an individual’s credit score. If you can get to know the ways they do this, you will be able to act accordingly and work towards a good credit score.
Change how you think about credit.
The advent of credit cards has made it far easier to borrow for everyone. Young people eagerly await the acquisition of their first credit card, and this makes for a lot of cashless spending. Unfortunately, this is also a recipe for disaster because young people tend to make foolish financial decisions. Currently, most people in the United States are running on debt. A lot of cash is being spent before it has been earned. It is easy to think of a credit card as a magic key to getting what you want in a material centric world. It is also very easy to drown yourself in debt very early and have to spend hours working every day part-time to pay it off. Spending a lot early on is thus a good way to get started on the road to a bad credit score.
To get a good credit score, it is best to act conscientiously and show responsibility while using a credit card. One needs to realize that there is no such thing as a free lunch and just because accumulating debt is easy to do, getting rid of it is not going to be such an easy job. Credit card debt reached more than a trillion dollars in the third quarter of 2019 in the United States alone.
Keep only one credit card
It can be tempting to get a new card to get fresh credit when another card is close to the limit. Many people keep multiple credit cards in their wallets. Often two or three. For many people, the decision to have multiple credit cards is not very well thought out. For most, it is a good way to get more credit. The more credit cards you have, the higher your credit limit, the more you can borrow at once and the more you can consume. Unfortunately, they conveniently ignore the fact that is borrowing more means you have to pay back more as well.
A credit limit is there for a reason-it allows you to borrow responsibly. Keeping only one credit card is a good way to ensure that you do not overspend. It will restrict the amount you can borrow and hence pay off.
Borrow and spend responsibly. Stick to one card will make that easier.
Set a limit for yourself
Credit cards already do have a credit limit. It is best to have one for yourself as well. Keeping to less than half or even to around one-third of your credit limit is recommended. This builds a good credit score. When an individual max out on their card, it conveys to the lender that they will have trouble paying it off in the future.
Setting limits on how much you can borrow by sticking to a rule (e.g. keeping your credit to 30% of the limit on your card) is a good way to a good credit score.
Hold back on applying for more credit
To get a good credit rating, it is best to take as little loans as possible. The more times you apply for a loan; it lowers the credit rating. This is because having more loans makes it more difficult for you to keep track of them and paying them off as well. Taking loans irresponsibly and applying for more credit accounts leaves you vulnerable to the slippery slope of borrowing. Holding back when applying for more credit allows you to only apply to loans when necessary. And that is also when a good credit score will come in handy.
Keep old credit accounts active
The older your credit account is, the longer is your credit record. Closing old accounts and opening new ones might affect your credit score, depending upon your history. A good portion of your credit score is dependant upon how long you have been using a credit account. More than 10 percent.
Make timely payments
Delaying a payment and accumulating dues will get you a bad credit rating. Pay your dues on time to ensure that a negative account is not added to your credit score. Negative accounts can cause your credit score to drop considerably.
In conclusion
It can be a real pain to have a bad credit rating in a world which is run on debt. It is important to be conscientious when making borrowing decisions. To maintain a good credit score, limit your borrowing as much as possible, age your accounts, and remember to make the credit payments on time!