A good credit score is one of the most important elements of financial wellbeing. A positive score can open many doors for us in the future. Jobs, apartments, starting or upgrading our own business, and many more. To oversimplify, it would look something like this: consistency and time equals a good credit history. Credit scores can also be seen as grades of sorts that agencies would assign us and share with creditors and lenders. In turn, they will extend a loan to us with carefully calculated interest rates, in accordance with that score. Also known as a FICO score, it is used by creditors and lenders to conclude if we have a good risk-to-benefit ratio for a loan. It provides the information if it is a good bet that we will pay off our loans with timely payments or not. Now, most people are or should be looking for ways to improve their credit scores. Here are some of the most important things to consider if we are looking to optimize our credit history and score.
Paying our bills on time
One of the biggest credit score killers are late and defaulted repayments. It is a plain indicator that we are, for whatever reason, not able to meet our financial obligations consistently. This comprises about 35 percent of our score, so we cannot ignore it. Timely bill payment should be made a priority. Scheduling, separate calendars for this purpose only, anything it takes. Statistically, millennials are struggling the most to keep up with their payments. These variables will usually not appear on our credit report if we are making good on them. On the other hand, they will appear as a big blemish for up to 5 years if we are late.
Let’s say that we are in a bad way with regards to our credit score. There is a way around it. If we have a poor and limited credit history, we will most likely not be approved for large amounts. And even if we do get approved, it will not be very favorable with high-interest rates and additional clauses. So, what do we do? We start with smaller amounts. A lender would like to see that we are financially responsible with smaller loans first. Even with good payment history, small amounts can really help us prove that we can be responsible in the long run. Another option to consider is that we can apply with a co-signer. If we are still struggling to get a loan, this is a valid path to take. We are not talking about simply adding an authorized user as with an actual joint account. Though, this option should be used as a last resort and with small amounts.
Having few consistent employers…
If it is an option and when looking for credit, we should remain at our current employer. Lenders like seeing stable employment in their clients. This type of stability means we have a better chance of coming through with our payments regularly. Once we have been with a single employer for five years or more, it starts to boost our credit score. Which further increases our standing with lenders and creditors. Obviously, that does not mean we should stay in non-perspective occupations just for the sake of our credit score. But we still need to be conscious that this variable does play a big role with our chances of being approved for a loan.
Much in the same way with changing employers frequently, consistent residency is a factor. If we are renting a new place every year, lenders will inquire on why that is. Opposed to that, lenders look favorably on homeowners. If we own a home, especially if it is all paid up for, that is a big help.
Increasing our income
It may go without saying, but increasing our income is one of the most sure-fire ways to increase our rating. Our debt-to-income ratio should always work in our favor. Annual raises and bonuses can help with tipping the scale to where we like it. Another way of going about it is to attack the problem from the other angle. There are at least two variables to any ratio. In this case, it is income and debt. We can improve the ratio by reducing our debt. If we continue to use credit cards while paying them off, this ratio will not improve. We need to prove that we are able to consistently reduce our overall debt for a certain period of time. We could even consider a favorable debt consolidation loan to get us through the most sensitive periods. This achieves the same result as a steady increase in income.
Reviewing our credit reports
It is important to check our credit report annually. The information is accurate and very valuable (with some occasional minor mistakes). And if any issues arise, we need to deal with them expeditiously, as these can smear our overall rating, down the line. If too much time passes, it may already be too late and the damage is done. Deliberate, fraudulent behavior is also a possibility and should be dealt with as soon as possible. If any such situations go unnoticed or unchanged, they can stick around for the next seven years on our record.
Establishing a favorable credit score and history takes time, patience, sacrifice, and dedication. There is nothing we can do overnight to make it happen and should be approached as a long-term goal. If we are just starting to establish credit, we should take things slow by opening few, small accounts. With these, we can develop good habits and consciousness about this touchy subject. Payment history, credit utilization, number of inquiries, credit age, and more all contribute to our credit score, for better or worse. The benefits that we can reap are too numerous to list but are always within our grasp. We can make great advances towards this goal in just a couple of months with these key pointers.