Personal Finance

The Journey to Achieving a High Credit Score

Your credit score can be a ticket to a nice car, a nice house, and a great job–or it can stand in the way of all of life’s critical milestones. When it comes to credit, the higher the better. However, the path to a high score can be difficult. Your credit score is determined by several items on your credit report.

Make Timely Payments

Being late on a credit card payment or a loan payment will have a tremendous impact on your credit score. If you fail to pay a bill and it ends up going to collections, that will stick on your report. If you have accounts that have gone to collections, call and try to have it deleted from your report as part of your agreement to pay. Make sure to get any and all agreements in writing.

Lower Utilization

Generally, your credit score will be at its highest when your utilization is under 10%. Most people try to keep things under 30% utilization for the day-to-day. Work on paying down your credit cards and any loans that you have opened. Focus on high-interest accounts first to save yourself money. At the very least, make the minimum payment to avoid late payment penalties.

Consider Your History

Creditors will be wary of lending to you if you have a “thin file” or lack experience with credit. That means having one to two credit cards and different loans on your report will help you build a solid history. Try to avoid closing older accounts as that will impact your average length of credit and cause your score to drop. So will opening new accounts. Instead, keep your older accounts open with a $0 balance. This will also help with your average utilization across all accounts.

If you’re planning on having your credit score pulled in the next 6-12 months, try to focus on paying down your accounts and wait on closing/opening accounts.

Avoid Inquiries

The number of inquiries on your report will affect your score and how likely a creditor is to lend you money. A high number of inquiries (credit applications) in the past 6-12 months makes creditors think that you’re in desperate need of money.

Every time a company pulls your credit report as part of a job application, loan application, or other application for credit, an inquiry will be added to your report. Inquiries stay on your report for 1-2 years.

Keep Available Credit High

Another thing to look for is how much available credit you have. Even with low utilization, a low amount of available credit across all of your credit cards can deter other creditors from lending you a higher amount. Likewise, a high balance across your loans and credit card accounts can also deter lenders from giving you money as it puts you at a higher risk of defaulting.

Get In The Good Credit Mindset

There are multiple tactics you can use to raise your score, but above all: don’t spend what you can’t pay. Credit cards are great for cash back, but interest will eat away at any rewards you may have earned if you carry a balance. Opt to pay your cards off in full at the end of every month to avoid interest charges. Even if you were to only take one piece of advice, implementing this approach would make a tremendous difference in your credit.

Enjoy The Benefits of Good Credit

While many of us may not agree with it, the fact is that every landlord, employer, mortgage broker, and lender that you ever interact with has the right to pull your official credit report and base their decision (in whole or in part) on the score that comes along with it. Keeping all of this in mind, it’s easy to understand why keeping track of your credit, and taking steps to improve it, is critical to a happy and successful life. Take control of your report today and start setting goals to improve your score.
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