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For some people, credit is a useful financial tool they can use to improve their wellbeing. On the other hand, most people don't know how to use and manage their credit properly, leading to their financial downfall.
To make sure you clearly understand how your credit can make your life better, here at Market Pro Secure®, we have decided to come up with this guide to give you all the essential information about credit and what you can do to make the most of it. The main goal is to point out how important it is to use your credit wisely.
Why Does Credit Matter?
Credit determines the quality of your life, and it impacts almost everything you do. If you want to buy a home, you need a good credit score to do it. A bad credit score could be a huge obstacle when getting a mortgage and a mortgage loan with a good interest rate.
On the other hand, a bad credit score might be a problem that could prevent you from getting a mortgage at all, simply because lenders will check your credit before they do anything. It’s almost the same if you want to rent a place, as landlords like to check your credit score to see with whom they’re dealing with.
Your credit is important when you’re trying to find a better job, as well. If your credit is bad, most employers will choose not to hire you. It also affects your insurance terms. The premium will be much higher with a bad credit score. Even telephone companies check your credit score before you can enjoy their services.
Here’s the catch – although it may seem like the credit score is out of your hands, it isn’t. You alone are the main factor determining what your credit score will be.
Actions Determining Score
How you manage your credit score defines the quality of your life. If you pay attention to the following actions, you can improve your credit score:
- Pay on time – most people fail to realize how important it is to pay bills on time. Here’s a simple fact – paying on time makes your credit score better. The more you pay off, the more it goes up.
- Know your debt – knowing how much you owe at all times is essential to making your credit score look good. Your credit score depends on how much credit you’ve already spent, a credit card balance, a loan, and everything else related to this sort of thing. If you’re neck-deep in debts, your credit score will only look bad.
- Credit history – if you have a long credit history, that could help you improve your score. If you have been consistently making loan payments for more than three years, that will look good in your credit report.
- Type of credit – the type of credit you have is very important. If you have a $10.000 credit, that’s much better than a $1000 credit. Higher credits are valued differently.
- The amount of credit you have – if you have five credit cards, your credit score will go down as you’re exposed to the risk of creating more debt.
4 Pro Tips to Build or Repair Credit
The sooner you start building your credit, the better. It’s also good to know that you can repair credit if it’s already bad. These tips should improve your financial awareness and help you understand how doing your research can help you weigh your options and make all the right moves to make your credit look good.
1. Get a loan to build your credit
If you want to start building credit, a personal loan might just be a great way to do it. Many credit unions give such loans, and if you pay it off with no problems, that’s an excellent introduction to building good credit.
2. Credit card is additional security
Getting a secured credit card is an excellent way to start building credit and prove your trustworthiness as a responsible payer. However, it’s essential that you understand the importance of choosing the right credit card. Aim for the one without costs and fees that exceed your budget.
A secured credit card allows you to borrow the means that you can use as a loan to buy the things you need. To pay that loan back, you need a cash deposit as a backup. If you regularly pay it off, that will look great on your credit report. It’s vital to understand that credit cards demand you to be very careful about how you’re using them. Make sure that you don’t spend more than you can afford and use your credit card only for emergencies.
3. Pay your own bills on time
Your bills, like utilities, your phone, and rent should be in your own name. Pay what you owe on time. You can get a credit to pay your rent as credit bureaus approve credits for such purposes. Just make sure you understand the terms to avoid ending up paying high fees for no reason.
4. Credit utilization
Credit utilization refers to the percentage of your credit that you already used. Ideal credit utilization is anything below 30%. This is one of the best ways to boost your credit score, but it’s important that you have the cash to pay for what you already used to make sure your credit utilization is below 30%.
If your credit utilization is above 30%, you need to reduce it and avoid charging too much and paying down your credit card balances. There are additional options also:
- Getting a new credit card – while you should keep your credit card numbers at a minimum to avoid owing more than you can afford, getting a new credit card provides more available credit. This could be a solution to increase your available credit if there’s a need to do so.
- Increase your credit limit – there’s always an option to increase your credit limit if the need calls for it, but that depends on your card issuer. If you have been paying your debts on time, there shouldn’t be any problems with increasing your limits.
- Pay your debts before your payment due date – if you make your payment a few days before the card issuer reports your balance, this could lower your credit utilization.
Frequently Asked Questions
Well, it all depends on how bad your credit is and how many mistakes you’ve made. If you believe that the credit bureau made a mistake, you can dispute it by filing a complaint. It takes about 30 days to verify the information. There are situations where they’ll ask for more information, which prolongs the process.
Credit history is all the information about your financial activities. To make sure you have a good credit history, you will have to demonstrate responsibility for a longer period. At the same time, this kind of behavior will directly lead to an increase in your credit score.
Several things are good for your credit history:
- Steady income
- Using the same mailing address over a longer period
- Making all of your payments regularly
- Using a minimum number of credit accounts
On top of that, make sure to check your credit report regularly. Sometimes the credit bureaus or lenders will make mistakes when reporting information. If you notice mistakes on your credit, you need to contact them and make it right to avoid further dents in your score.
Yes, you can have credit score without a credit card. But, you need proof of some credit history because that can be used as a credit report. Creditors need a credit report to calculate your credit score. All it takes is being responsible for paying your loans on time. It’s easier to build credit if you know how to use credit cards responsibly. That will show creditors that you can manage revolving debt.
There are many factors to take into consideration, but we think that your payment history is the biggest factor. To make sure your credit score looks good, pay your bills on time. Credit utilization and history are also essential to your credit score. You can monitor your credit score fluctuations by checking your credit report every now and then.
This will help you identify any irregularities that might negatively impact your credit score. It is essential to keep track of these things, especially if you plan on applying for a loan of any kind.
The methods of calculating credit scores change all the time, and these changes impact how taxes affect your credit report. However, some tax-related items, such as tax liens, were removed from credit reports.
Still, some lenders, like mortgage lenders, still include tax liens when calculating loans, which means that even though tax liens don’t actually change your credit score, you’ll still have to pay off your tax debt.
The most common model for credit scoring includes five essential factors needed to calculate credit scores. These factors vary in the way they impact your score as some have a greater impact than the others. These factors are:
- Credit history – 35% impact
- Credit utilization – 30% impact
- Length of use – 15% impact
- New applications – 15%
- Types of credit – 10% impact