As a working professional, you likely have several personal goals you wish to obtain during your career. At the top of the list for many professionals is buying a home. Before you start looking for a new residence and making big plans, there are a few things to focus on to have a successful outcome. In this article, we review the importance of your credit score and how to improve it.
.A high credit score is a significant advantage when applying for a new credit card , buying a car, or purchasing a house and lot . It tells lenders that you are a responsible borrower and that you deserve the credit you wish to obtain.
Despite the importance of having an excellent credit score, though, you may underappreciate it and be guilty of the following:
Not Understanding How Credit Scoring Works
It is imperative to know what can improve or hurt your credit score. As a general rule, paying your bills on time and in full can do your overall creditworthiness a lot of good. However, punctuality is only one of many facets of credit scoring. Credit utilization, age of accounts, and credit history length are other critical factors you need to consider.
Credit utilization refers to the debt-to-credit ratio, which depicts your level of indebtedness. Just because you can use your credit cards to buy goods worth $80,000 does not mean you should max them out. A safe credit utilization percentage is 30%; it tracks your financial activity generously without making you look like you over-depend on debt.
The average age of your accounts matters too, so you should start as early as possible. If you have an old credit card, think twice before closing it because it can impact your credit score significantly. Applying for a new card can do the same because it reduces the average age of your credit accounts.
The lengthier your payment history is, the more information a lender can use to assess your creditworthiness. You should use your credit cards regularly, but know when to stop to avoid abusing them.
Not Timing Credit Inquiries
To avoid having a reputation for living off debt, observe gaps when taking out loans. It helps improve your image when you different types of credit, but you should not acquire multiple debts simultaneously because this practice reeks of desperation.
Not Using Online Tools to Compare Financial Products
If you are curious about which loans and interest rates you can qualify for, do not approach lenders directly. Use digital apps to compare products, so you will not have any records of inquiring for credit. Since most if not all of these online services are free, use them to maximum effect.
Not Requesting for More Credit Limit
To improve your debt-to-credit ratio, sometimes all you need to do is ask. If you have been with your credit card provider for a long time, and have been a good customer, use the “loyalty card” to raise your credit limit. You do not have to use the extra purchase power you gain; it already helps improve your credit score by making your debt look smaller.
Perhaps the worst mistake many of us make is not monitoring our credit score. To stay on top of your credit standing, take the initiative to get a copy of your credit reports. This way, you can see your strengths and areas for improvements and be in the best position to take out whatever loan you need in the future.