Your credit score is what lenders use to determine whether they can extend credit to you. It is also important to determine the interest rate and the terms of credit or loan to be offered to you.
High credit score means your credit application is likely to be approved, while low credit rating results in you application being rejected. But in case your application is approved when you credit score is low you will have to pay high interest rates.
The credit score is broken down into your payment history (35%), total amounts owed (30%), length of credit history (15%), new credit (10%) and type of credit in use (10%).
For you to maintain high credit score, you need to observe the following:
Pay your dues in good time
Making your payments in time is the single most important thing you can do to improve your credit score. As you can see fro the above categories, the payment history has the largest percentage. Payments that are past their due date will appear on your credit report and impact on your score negatively. And the negative marks usually stay on your report for up to seven years.
Check your debt load
Strive to keep your total debt load under control. The total amount you owe is the second largest factor used to determine your credit score. In case you currently owe a substantial amount, better stop borrowing and concentrate on lowering the debt load.
That may sound difficult especially if you have a pressing issue, but if you are keen on improving your credit score better look for other alternatives of sorting out your problems while you work on lowering the debt load.
You may also consider checking how much of your available credit is utilized. Having many credit cards that are close to their limits or those that are already maxed out will negatively affect your score. For example, a single credit card with a $2,500 and a $2,000 balance is worse than two credit cards with a $5,000 limit and a $1,000 balance on each.
Do not close old accounts
Keep all your old accounts open. The length of credit history matters a lot in determining your credit score. If you have old accounts that are in good standing, it is better to leave them open. While it is advisable to keep the number of your account low, it may hurt your score to close an account that is in good standing than if you keep it open, having many accounts notwithstanding.
And you need to be very careful when opening new accounts. New credit may seem to be a lees important factor in determining your score, but it is also important. Your report should not appear as if you are always looking for credit.
There is no need to open accounts that you don’t need or intend to use. You may be tempted to get that additional 10 percent off by opening that new store card, but the amount saved in such accounts will be insignificant when your credit score is being determined.