When applying for loans or credit cards, lenders will look into your credit score to determine your creditworthiness. This information will help the lender decide whether you are a responsible borrower or not. There are several institutions that can track and report your credit score.
However, FICO is the most common type of credit score created by Fair Isaac Corporation. Lenders use FICO’s platforms and credit scoring services to check a borrower’s credit history and rating. There are many different factors that can affect the status of your FICO credit score.
If you are new to this idea because you just started working or borrowing, no worries. You simply need to know the basics of the things that affect your credit score and how to build a higher credit rating. Listed below are four handy tips for building and improving your credit score.
1. Pay Bills Ahead Of The Due Date
The first concern of lenders is your likelihood to pay back the money you will borrow. If you have credit cards and mortgages, you must pay your bills ahead of time and never miss a payment. Paying on time every month proves that you are reliable and it can boost your credit health.
You can set up automatic debit payments. This kind of arrangement will authorize the bank to deduct money from your bank account to pay off bills automatically. The automatic debit payment is convenient and efficient, simplifying the way you handle your credit card or other payments.
2. Check Credit Reports Regularly
Once a year, you can get a free report from three major credit bureaus: Equifax, Experian, and TransUnion. Make sure to get yours and check for mistakes or errors. These things happen and it is your responsibility to correct the mistakes and get these removed from your record. Remember that checking your FICO score will not impact your credit score, therefore, make it a habit to verify all the details in the report.
Take note that credit bureaus have at least 30 days to investigate and respond after you file a report. Always check for incorrect transpose digits, name spelling, and any other human errors.
3. Settle Your Debts
Do you need to build or improve your credit score to apply for a loan? If you have existing loans on your report, the chances of getting approved for a new one are slim. What you can do is settle your other remaining debts first before applying for a new loan. Overall, it is always a good idea to settle your debts as soon as possible. This also helps you prove financial responsibility.
4. Diversify Your Credit Mix
Lenders want to see a mix of credit accounts and loans in your credit report. However, it is not practical to take loans for the sake of adding extra entries to your report. Only take out a loan when you can productively use it and pay it back. It’s best to have clean and good records to show that you are responsible and you can pay back the money you owe on time.
Building and improving your credit score take a lot of work. Being consistent is key, especially when it comes to paying the bills on time. If you are trying to build your credit score, be smart with the loans you take out to have a smooth and care-free loan journey.