A credit score refers to the creditworthiness of a person. It includes statistics based on a person’s credit history. A lender uses a person’s credit score to evaluate whether he can repay his debts or not. Usually, the credit score of a person ranges from 300 to 850. The higher the credit score of a person, the more financially trustworthy he becomes.
The best way of saving money on credit cards, car loans, mortgage, and interest rates is to keep an excellent score of your credit. Also, a regular credit score check is considered to be a viable option. Here are a few habits that people with good credit score have in common:
Paying bills on time
The payment history of a person plays a significant role in determining his credit score. Late payments are considered to be the worst credit mistakes. The payment history of a person makes up for about 35% of his FICO score. People with a good credit score always pay their bills on time, before the respective due dates.
Disciplining the financial house
A good credit score is significant for every person. It involves setting correct habits with the other finances. You need to have an account of what you spend and have an estimated budget. Eliminating all kinds of waste is very important. Starting to save more is something that you should work on.
People with a good credit score have safely knitted plans that keep them organized and up-to-date with their financial status.
Having a long and stable credit history
A good credit score does not mean that you never take loans or have any debts. It merely means that you pay all your debts on time. Credit history makes up about 15% of the FICO credit scoring scale.
People with a good credit score have records stating that they take their debts seriously. These people have a long credit history, which proves that they always pay their debts on time.
Limiting the use of credit
The amount of credit that a person uses creates a significant impact on his credit score. Every person with a credit history uses some credit, but the goal is to limit the use.
The credit utilization ratio of a person is the percentage of credit that is available for his use. You must try to keep this ratio below 30%. This makes the creditors think that you can live well within your means and have no difficulty in paying your bills. A high credit utilization ratio indicates too much dependence on a person on credit.
Having the right mix of credit types
Your credit mix determines a small portion of your credit score, which is around 10%. Credit is of two main types- installment and revolving.
FICO considers factors such as retail accounts, installment loans, finance company accounts, mortgage loans, and a mix of credit cards while determining your credit score. Thus the people with good credit scores have several kinds of open credit such as car loans, mortgages, credit cards, and student loans.
Opening and closing accounts not too frequently
Closing the old lines of credit and opening new ones can hurt your credit scores. Though the effect is temporary, people with good credit scores do not attempt this more often. It can increase your utilization rate very quickly. The continuous process of opening and closing accounts can lead to a drop in your credit score.
Monitoring credit reports
People with good credit scores often review their credit reports. This is important to identify any error or inaccuracy that may occur in the story. These errors are to be reported to the institution associated with your account. Any incorrect or outdated information should be sent for recorrection.
Reaching out for high credit limits and low-interest rates
Increasing the ratio of debt to credit is essential for keeping a good credit score. Even the credit card companies keep on introducing new offers to expand your debt amount. Analyze these offers and use them to keep your credit balance low and grow your credit limit. People with good credit scores often pay attention to their credit limits and also find ways how interest rates can prove beneficial to them.
Rome was not built in a day. Similarly, a good credit score cannot be earned overnight. It involves time and effort to prove that you are creditworthy and can repay all your debts. Know what your current financial position is, and you will see how you improve your credit score.
Keeping a good credit score is what every person desires. This article includes a few habits that people with a good credit score have in common. With the right move at a right pace, anyone can become creditworthy and build a good credit score.