Staying on Top of Your Credit ScoreJoshNovember 12, 20170 viewsHome Finance0 Comments0 views 0 Good credit is necessary to get a car loan, rent an apartment, borrow money to buy a house, qualify for a credit card, etc. Without good credit, loaners will either charge you a high-interest rate or deny you a loan. You can even be denied for not having a credit history at all. What is a Credit Score? Credit scores represent whether an individual is worthy of credit. It helps lenders determine who to qualify for loans and at what interest rate. This score informs banks and lending institutions as to the likelihood that an individual will repay a loan. Credit scores are calculated based on the following: 35% based on payment history: This shows whether you have paid other credit accounts on time and whether you have defaulted on any loans in the past. 30% based on debt level: This looks at the amount of your current debt, and how much it takes up of your available credit. 15% based on length of time you’re in debt: This looks at how long you have managed different credit accounts. 10% based on new debt: This shows whether you have opened or attempted to open any credit accounts in the past two years. 10% based on type of debt: This shows the mix of debt you have: credit cards, car loans, mortgages, student debt, and installment loans. Building Credit Early Establishing credit and learning to use it wisely at a young age can be very beneficial. Showing that you are responsible with money matters today more than ever. It can help you rent an apartment and help you avoid considerable down payments when setting up utilities. Here are some ways to start building your credit history. Store credit: Store credit cards are generally easier to obtain than standard credit cards. They tend to come with higher interest rates, but the goal is to maintain modest balances that you can pay in full at each billing cycle. Don’t open a bunch of cards. This can actually have a negative effect on your score. Instead, open one or two accounts and focus on spending judiciously. Secured credit: These credit cards help you establish credit without getting yourself into trouble. Secured credit cards require an initial deposit that acts as collateral and establishes the borrower’s credit limit. Showing that you can pay the minimum amount due for a period of time may allow you to graduate to an unsecured card. You will still need to demonstrate you have a source of income and some documentation of your expenses. Rent: When renting your first apartment, try to get your name on the lease. Many credit bureaus keep track of your rent payments. Paying your bills on time could help you establish credit. Although larger property management firms are typically willing to pass along payment history to credit agencies, they are not required to. It does require some time and expense from the landlord, so individual landlords tend to opt out. Ask in advance of renting. You may be able to pay through a rental service if your building owner doesn’t report your payment activity. Improving Your Credit Score There is no quick fix when it comes to improving your credit score. Nevertheless, it is worth the trouble. The best way to improve your score is to pay your bills on time, avoid opening new credit accounts, and pay off existing debt. Start by checking your credit report. Getting a freecreditscore is fairly easy, and you are entitled to a free credit report annually from each of the three major credit reporting agencies. On your report, look for inaccurate information and debt that is too old to be reported. Debt cannot be reported seven years after it first goes late as long as there is no further activity on the account. Dispute any errors you see. Don’t let inaccurate data hurt your credit score. It is only as good as the information used to calculate it. Then, pay attention to patterns that got you into trouble in the first place. Create a budget so that you keep your spending within your means. The sooner you start addressing your bad credit, the sooner you can resolve it. Rebuilding Credit Plan The best way to rebuild your credit is to have a plan. Getting out from under bad credit can help you establish good spending habits for the future. Catch up payments: Once you have checked your credit report and you know your credit score, arrange to bring all of your accounts up to date. If money is tight, contact your creditors and arrange a payment plan that you can stick with. Be up-front with your creditors and inform them of your desire to pay your obligation and how much you can afford. Sometimes you can even negotiate a lower balance. Pay bills on time: It is important to start paying all your bills on time if you aren’t already. Late utility and rent payments can be reported to credit bureaus. It is vital to establish a reliable pattern, so avoid missing payments or becoming a habitually late payer. You might even consider setting up automatic withdrawals to make sure you don’t miss payments in the future. Pay off debt: Create a budget and start paying off any debt you are in. Credit utilization is a factor into your credit score. You have a certain amount of available credit. If you are in debt, it takes away from your credit availability. You want to get your credit utilization down to 30 percent or less. Evaluate your expenses and cut back. Stick to your budget. Avoid closing accounts: If possible, avoid closing your credit accounts. Your credit score will be better the longer your payment history. You may not have a choice if you are very far behind on your payments. Where possible, only use these accounts to pay necessary bills. Set them up for automatic payment of rent and utilities. Pay the balance off every cycle. By keeping the cards open and only using them for necessities, you continue to positively affect your payment history without incurring additional debt. Establishing credit and maintaining a high credit score will benefit you in the long run. If you are young, start building your credit history with positive spending habits. If you have bad credit, start rebuilding it today.