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How To Better Understand And Improve Your Credit Score

We hear a lot about credit – credit reports, credit freezes, credit monitoring – and most popular of them all, credit score.

A healthy credit score plays an important role in your future financial plans. The better your credit score, the more likely you are to unlock your full credit potential and achieve your financial goals. The first thing you can do to build your credit health is to learn about your credit score and the actions you can take to improve it. But the credit landscape can be complicated, especially when you are first starting out.

In this guide, we will explain some of the fundamentals that can help you to better equip you to better understand your credit score and help you how to improve it to your benefit.

What Is Your Credit Score?

The information in your credit report will be evaluated in a 3-digit number called a credit score, which is calculated based on data like loan payment history and credit card balance. The experts from 3creditscores.net explain that your credit score acts as an indicator of your credit health. Most of us are assigned more than one credit score, and they are slightly variable due to different credit bureaus, scoring systems, and times of updating. The most popular ones at the moment are FICOScore and VantageScore.

Why Does Your Credit Score Matter?

There are multiple scenarios over the course of your lifetime in which people will depend on your credit score to decide whether you are a good person to do business with and what your best rate is. Here are just several examples of what a good credit score can get you:

A Pass For Your Loan At Some Financial Institution

For larger financing, those that are for your mortgage, your car or to open a business, most people will choose to visit a bank first. There is a lot of information that is required in your application form, but your likelihood of getting a loan is predominantly decided by your credit score. Moreover, a good score also locks you into the best rate, which can translate into hundreds or thousands in savings.

A Key to Better Credit Card Options

It is relatively easy to get a credit card no matter the state of your credit history, but the options can be tricky. A high credit score can land you in the qualified candidate list for a broader range of credit cards, which offer better rewards, including sign-up bonuses, membership points, entry to airport lounges, and more.

A Ticket To Get Better Insurance Plans

One of the factors that insurance companies consider when evaluating an applicant’s risk is by defining the probability that one will be delinquent on their insurance payments. Thus, a good score can help you qualify for the best insurance policy and translate to huge savings over time.

What Affects Your Credit Score?

The main factors that impact your credit score vary depending on the scoring model being used. Here are some elements that generally affects your credit score:
- Your payment history.
- Your credit utilization rate.
- Your number and age of credit accounts.
- Your current debt and total debt.
- The number of late payments you made.

What Can You Do To Achieve An Excellent Credit Score?

Now that you have a basic idea of credit score and how the scoring system works, here are our top tips for maximizing your credit score:

1. Monitor Your Credit Report

Keeping track of your credit report regularly can instantly give you an idea if you are making progress or if there is anything going on that is dragging your score down. There are many credit monitoring and credit educating tools that you can easily find off the internet. Make the most of these tools so you won’t end up wondering how your credit was spent.

2. Always Make Payments On Time

Your payment history accounts for a third of your score, so on-time payments should be your top priority if you want to improve your credit score. Remember, these credit card payments include not only your debit payments but also your monthly bills like rent, utilities, and mobile services.

3. Optimize Your Credit Utilization Rate

Your ideal utilization rate should be around 30%. If you are currently exceeding that level, try to optimize this ratio with the following tips:
- Lower your credit card balances by paying more than the monthly minimum.
- Reduce your total balance owed while maintaining your total limit by keeping your cards open even after you pay them.
- Make a limit increase request to your bank but don’t actually spend them.

online payment with credit card

Take serious consideration when taking on new debts or closing an old account. Too many debts at the same time can signal that you are struggling, and taking on more debts than you can handle while closing an old account can reduce your utilization ratio. Both of these scenarios are bad for your overall credit score.

Strong credit health can empower your decisions and give a financial boost to help you achieve your life goals. It’s a no brainer that keeping a good credit score should be everyone’s top priority. You don’t know when you will be in a situation where a loan is needed, so planning in advance by growing and maintaining a good credit score is vital for everyone.