How to Build and Maintain a Good Credit Score

A good credit score is important to your financial health because it is often used as a basis by financial institutions in determining your eligibility for loans and mortgages. A good credit score can pave the way for you to make your dream home a reality. It can also lead to your first car purchase. 

Thereby, ensure that you make an extra effort to build and maintain your credit score with the help of some tips below.

Building Your Credit Score

• Be Selective of the Loans You Apply For

The first thing that you can do to build your credit score is to avoid getting into an excessive debt. It goes without saying that as much as possible, only borrow what you can afford to pay back. This can be made possible if you are selective of the loans you apply for. Consider some of the best credit builder loans that allow you to build payment and credit history while you save money. But before getting a loan, it is best to review your budget to have a good idea of the payment terms that are manageable for you.

• Manage Your Credit Cards

When you are just starting to build your credit score, it is good advice to acquire a single credit card at the beginning. This is because it is easy to get into a tumultuous debt if you use several credit cards at once. Maintain a single card and use up only a small amount of the credit you have available. This will be a good reflection of your spending habits because lenders often assume that individuals who max out their credit cards often find it difficult to repay their debt. It will also help to always pay your credit card balance in full because this shows that you are capable of paying the bills, as what lenders and creditors prefer to see.

Maintaining Your Credit Score

• Pay Your Bills on Time and Manage Your Debt

Oftentimes, your bill payments get reported to the credit bureaus such that when you fall behind your payments, it can get on your credit report, affecting your score. Aside from ensuring that all your bills are paid promptly, it is also important to manage your debts. Your loan balances and lines of credit can have an impact on your credit score such that if you have a lower debt, it will be easier for you to maintain a good credit score.

• Keep Track of Your Credit Report

In order to maintain a good credit score, it is important to keep track and monitor your credit report. This is because errors could end up in your credit report and this can be due to typographical mistakes, or even a more serious case of identity theft. Once you detect any errors in your credit report, you will have the opportunity to file a dispute for correction promptly.

In line with this, it is also important for you to have a good idea of what goes into your credit score. There are five key elements that make up your credit score, namely your payment history, your level of debt, your credit age, your mix of credit, and your recent credit. Knowing this will allow you to manage your credit score better.

• Keep Your Old Accounts Open

Your oldest accounts help increase your credit age, which is why it is a good idea to keep them open. Once your inactive accounts are automatically taken out by the credit bureaus after a decade, you will lose a certain credit history that can shorten your average credit age, causing your score to drop. Closing a credit card can also reduce your available credit, which can eventually reduce your threshold as well.

To wrap things up, a good credit score is essential in terms of your financial health. In order to build it, only borrow what you can afford or use up only a small portion of the credit you have available. You can also consider a credit builder loan or start with only one credit card and pay your balances in full, with all your payments made in due time. On the other hand, once you have built your credit score, maintain it by leaving your old accounts open and managing your debt promptly. It is also a good practice to keep track of your credit report to be able to file a dispute on the errors it incurs. All these are geared towards building and maintaining a good credit score that will open a lot of opportunities for you when it comes to your finances.