Having a high credit score has become one of the key components of adult life in recent years. Having low or troublesome credit can make it difficult to obtain the best interest rates for items like mortgage loans, personal loans, or student loans. Having good credit can also make it easier to get a good loan rate if you’re looking to refinance your house mortgage, debt, or any number of life goals. It’s an important thing to have in your adult tool kit and luckily, there are a few tips and tricks to help you maintain and build your credit along with some common mistakes to avoid.
Credit scores usually range from 300, the low end of the spectrum to 850, the higher and excellent credit range. If your score is below 700, it is important and in your best interest to work on improving it so you don’t appear as a risky borrower to potential lenders. Below are six tips to help improve your credit score.
1. Not Checking Your Credit Report Regularly
Even though some sources may say not to check your credit score regularly, it’s important to check it on a regular basis. When you do, make sure you check for any and all evidence of identity theft or if there seems to be any suspicious activity. By checking your credit report, you can keep tabs on fraudulent activities and report any errors, which if left unchecked can negatively impact your credit score until you file a dispute. A great way to stay on top of your credit report is to enroll in a credit monitoring service. This service can alert you when your credit score changes, potential fraudulent activities, and late payments.
2. Missing Payment Due Dates
The most essential piece of your credit score is your payment history. Missing payments or making late payments is one of the most important mistakes to avoid. It accounts for 35% of your FICO score, which can be detrimental. Missed payments can result in a subprime credit score, a score between 580-619; and while it is a fair credit score, it can last on your credit report for up to seven years. It is vital to at least make the minimum monthly payment on your credit cards and loans. This helps keep your accounts in good standing and will prevent you from incurring pesky late fees.
3. High Credit Utilization Rate
So, what does a high credit utilization rate mean? This is when you use up all of the available credit on your credit limit. This can hurt your credit score, as even if you make monthly payments, keeping a high credit balance isn’t advisable.
Having a high credit card balance or even a large loan balance can make you seem risky to lenders. This can hurt your chances of getting a good interest rate, not to mention add stress to your life with high credit card balances.
4. Frequent credit applications
Many credit cards have flashy tactics to gain exposure and users. Having too many credit cards and loans in a short amount of time can result in a hard inquiry. A hard inquiry happens when you apply for a new line of credit and means that a creditor has requested to look at your credit file to see how attractive or risky you appear as a borrower. A hard inquiry can temporarily penalize your credit score and limit your chances of approval with new lines of credit.
Additionally, when you have too many new accounts, this could also harm your credit and may disqualify you from having a lower loan interest rate. Your credit score grows higher the longer you have a credit history.
5. Cancelling Old Credit Cards
This is an easy one that is often overlooked. It is important not to cancel credit cards that are several years old. When you have a lower number of accounts, it reduces your total accessible credit and length of credit history. Closing old accounts will reduce your chances of fraud and default, but it’s a better idea to keep old accounts open after the balance is paid down to maintain and build your credit score.
6. Early Retirement Fund Distribution
If you choose to allocate your retirement funds to pay off your high-interest loans, it’s likely to increase your credit score. This may be worth it to some borrowers, as it can help avoid short-term financial difficulties. Keep in mind that early retirement distributions will cause taxes and penalties and should be avoided if at all possible to avoid future stress.
In this climate, having a good and high credit score is essential and these steps can help you maintain and build your credit. Need additional help? Reach out to your Highlands Community Bank personal banker for more help and credit guidance!
Leave a Reply