How to Get a Good Credit Score
Having a good credit card score can make your life a lot easier.
If you have a quality score, you not only qualify for various premium deals and rewards programs from credit card companies but can also negotiate much better rates on loans, providing you with more flexibility on big purchases such as a home or a car.
But, as many people have found out, figuring out how to maintain a good credit score isn’t that simple. Even a few relatively minor mistakes can cause your rating to go down, putting more strain on your financial independence and ability to make financially savvy decisions.
But how do you get good credit?
Well, in this article, let’s explore how to get a good credit score and avoid some of the most common pitfalls that people end up succumbing to.
What is a “Good” Credit Score?
When you apply for a loan or want to take out a credit card, your credit score will be the primary source of information that will tell the banks and the lenders what rates they can safely offer you.
But while the process behind determining the score can get a bit tricky, the actual numerical values are quite simple and easy to grasp.
Most companies use a grading system from 300 to 850, which encompasses everything from reckless financial behavior to a flawless financial history.
Ideally, your credit score should be somewhere in the high 700s or 800s, but if that’s not possible for now, try to get it as high as possible, since even a small difference can have a huge difference.
What Factors Contribute to Your Credit Score?
Before you can figure out how to get good credit, you need to understand what the term “credit score means” and what are the components behind it.
Luckily, the formula for calculating someone’s credit score isn’t complicated and is made up of five key areas of a person’s finances:
- Payment history
- Credit age
- Level of debt
- Diversity of credit
- Recent credit
Other common aspects that influence your credit card are your overdrafts and payments of bills, which may not have as much of an influence, but can also play a role.
The critical thing to understand is that every financial decision that you make, even if it’s a late payment on a bill or a loan, will have an impact and will factor into the types of offers you can get in the future.
Stay on Top of Bills
One of the most common ways that people damage their credit score is by not being diligent about paying their bills and other financial responsibilities.
You probably understand the importance of paying back your loans and credit card bills on time. Still, the same also applies to utilities such as electricity, garbage disposal, or water, as they can also be factored in when determining your score.
You may not consider something as seemingly simple as paying a library fee when thinking about how to have good credit, but it can play a role, especially if the library reports it.
Keep Your Credit Card Balance Down
Using credit card balances is a convenient way to pay for purchases, but you should be careful not to get your balance too high, or that could have a negative impact on your credit score.
A good rule of thumb is to keep your credit card balance below 30% your spending limit, as that will prevent any flags being raised and won’t affect your credit score as long as you pay the balances on time.
So, for instance, if you have a credit card balance limit of $1,500, you should try to maintain it below $450 every month, and keep track of your expenses at all times.
Although this may seem obvious, these types of habits can be hard to develop, so you need to stay mindful of them if you want to learn how to have a good credit score.
Pay Off Debt
Debt is another crucial factor to consider when learning how to keep a good credit score – although debt in of itself isn’t necessarily going to ruin your score, there are factors you must understand to keep it under wraps.
For one thing, you shouldn’t let your debt balloon too much compared to your income, as having a lot of financial commitments will lower your score significantly and make banks and credit companies wary about lending to you.
And it goes without saying that the best practices of how to maintain good credit revolve around having a flawless record of paying back your debt payments on time.
Ideally, you should try to work your debt down as quickly as possible if you want to improve your credit score, and could even use the help of financial experts who can help renegotiate your terms and get a significant chunk of your outstanding debt waived.
Monitor Your Report for Inaccuracies
Even if you know exactly how to get a good credit score and are doing everything right, there are no guarantees that your credit score will reflect your impeccable financial record as well.
It’s important to understand that no one is protected from errors and mistakes by others – if someone miscalculates or misunderstands your financial situation, that could significantly reduce your credit score and cause severe damage to your financial reputation.
To prevent that, you should be alert about any inaccuracies in your financial records and credit score, reporting them as soon as you notice them and having them fixed accordingly.
Sometimes, the reason for a lowered credit score might be identity theft or credit card fraud, both of which are serious offenses that you should report as soon as you suspect them.
Time Your Credit Applications Accordingly
One of the lesser-known factors that is crucial when deciding your credit score is the timing of your credit applications.
Every time you apply for a loan, the company performs a hard inquiry into your credit history, digging deep into your financial behaviors to determine whether you qualify for a loan, and what rates can be offered.
While this is understandable and may seem harmless, the truth is that every time someone performs a hard inquiry into your credit history, that automatically lowers your score for a temporary period of up to one year.
Therefore, you should be very mindful about where and when you apply for credit – try to wait an appropriate time before applying for different types of credit and do your research to see how likely you are to get the loan that you want.
The good news is that if you apply for the same type of loan within 45 days, the separate hard inquiries will usually be counted as one.
Don’t Close Old Credit Cards
A seemingly harmless action like closing a credit card that you’re no longer using shouldn’t require a second thought. However, when learning how to keep good credit, you will soon find out that it can not only reduce your financial flexibility but lower your score as well.
You see, as you keep a credit card for a longer time, it provides more information about your financial behavior, and if you maintained a good record, that would have a positive impact on your score.
If you close the account, that history will eventually be removed from the system, shortening your credit age and your credit score in the process.
What’s more, it also reduces your available credit – if you have four credit cards with a $1,000 limit, you can theoretically take out $4,000, and can safely spend up to 30% of that amount. But if you close one of them, the amount is reduced as well.
Score Boosting Programs
One of the most useful ways to have good credit is to have a rich credit history that shows lenders that you are a responsible and reliable person to give money to.
But for some people, especially those that are younger and don’t have a lot of credit experience, it can be hard to secure a good credit score, as they don’t have a large number of credit accounts, and those that they do have are quite young.
Luckily, there are score boosting programs that allow you to provide more information to your lenders – you can connect your checking and savings accounts to your credit score, which can show lenders that you handle your finances well and can be trusted.
Be Patient: Credit Building Timelines
When looking for how to get a good credit score, most people are hoping to find quick solutions that can provide a boost in a matter of weeks or months.
However, while it is possible to improve your credit score gradually, building an excellent credit score is a long process that requires you to be disciplined in your finances.
Basically, it comes down to paying your bills on time, not taking too much credit, and being responsible about your financial decisions.
A good rule to remember that while it takes a very long time to build a good credit score, ruining it can be achieved in a matter of days. If you’re looking for help in achieving your financial goals, contact us today! We offer a free consultation service with our certified Debt Consultants. Start your debt-free journey today.