Here's Why it Pays to Build Strong Credit History
You've probably heard at some time or another that you need to have good credit and build a strong credit history. Perhaps, you're unsure why maintaining a strong credit history is so vital. Here is a little information about credit scores and why it's imperative that you build up a positive one and then keep it that way for as long as you can.
Why It is So Important Having Strong Credit History
A credit score is a measurement of how reliable you are with the funds that the lenders entrust you with. The score is a clear-cut number on which many lenders base their decisions. The credit report is a lengthy and detailed version of the score. It tells a story about your spending habits and whether you make your payments on time. It tells lenders if they should consider you as a low or high risk, as well.
If you are considering applying for a loan and are looking for a suitable lender, we can help you with that. Just fill in the form below, and based on your credit score information, we will connect you with a lender:
What Is a Good Credit Score and History?
A "good" credit score is one that is generally higher than 700 points on the FICO scale. However, you can have a 700 credit score and still receive credit denials. Lenders look at the entire picture. They review the whole report, and sometimes they decide not to approve applications. That's why it's essential for you to build strong credit history rather than to just obtain a good score. Building a strong history is having a favorable profile for a significant amount of time. You can build strong credit history in a period of about two years.
Ten Benefits of Having a Strong Credit History
You can reap many benefits if you build strong credit history. These are 10 benefits of having that as well as a high credit score.
You Can Obtain a Home and Car
The two most important pieces of property that you'll ever want to own are a house and a car. You can obtain both of those easily if you build good credit history. Cars are always easier to obtain than houses are, however. You'll have to meet more criteria to get a home than you would have to meet to get a car. For instance, mortgage lenders like to see applicants have a debt-to-income ratio of 45 percent or less. It's crucial that you pay attention to how much you're spending in relation to your income for that reason.
You Can Help a Family Member
You can help a family member who needs you if you build a good credit history. You may have a family member who needs a co-signer for a home, car, or personal loan, for example. You can extend that favor to someone you love if your credit score is high, and your history is respectable. By being a co-signer on someone's loan, you are giving that person the opportunity to obtain something important. Your family member could be well on his or her way to building an excellent credit history with your help.
You Can Get Better Jobs
Believe it or not, many employers now check their applicants' credit reports before they make a hiring decision. This method is especially true in the finance industry. They want to make sure that applicants are not in a desperate situation with money so that they can protect their assets. You won't be limited to only certain jobs if you build good credit history, however. You'll be a candidate high on the list of many potential lenders.
You'll Have Access to Lower Car Insurance Rates
Insurance companies now use credit scores to determine the premiums for drivers. The lower your credit score is, the higher your premium will be. Thus, you can access much lower rates if you build good credit history. The low insurance bill can help you to keep your overall monthly expenses down to a minimal amount.
You'll Get the Best Interest Rates
The interest rates on various loans will be much lower if you have a high credit score and a long and strong history. Let's take a new credit card, for example. You might gain an approval and get a 12 percent interest rate if you have a good credit score. Another person who has bad credit might have to pay 29 percent or more. Being responsible with credit does make a difference in how much you pay your lenders for their gratuitous loans.
You'll Get More Credit
You will be a credit magnet once you establish yourself as a responsible borrower. Lenders will be sending you prequalification letters that seem like they came from nowhere. You'll no longer be restricted to high-APR bad credit products that may not seem worth accepting. So many people will want your business that you might get confused about which offers to take.
You Can Get Higher Limits
Positive things can happen with your existing credit cards, as well. Many credit card companies believe in raising cardholders' credit limits once they prove themselves responsible over time. Your credit card providers might evaluate your account after three months, six months, or one year to see how you're doing. You will receive random credit line increases if you're doing well. Furthermore, you'll receive approvals if you request a credit line increase.
You'll Qualify for Contract Cell Phones
Just about every consumer owns a cell phone of some kind. Cell phones are becoming highly expensive, and the service is, too. Providers treat people with good credit scores special, however. Therefore, you'll have access to obtain a brand new smartphone with $0 down if your credit score is up to par. You'll also have access to a smartphone service that doesn't require a security deposit.
You Can Avoid Utility Deposits
Many utility companies charge new customers a security deposit when they first order service. They do this to new customers sometimes when they're unsure about their reliability. You will most likely receive service with no security deposit if your credit score is a positive one.
You Can Get Approved for Apartment and Home Rentals
A good credit score can come in handy even if you're not quite ready to buy a house. Apartment complexes usually run credit checks to qualify new applicants for apartment rentals. With good credit, you can avoid denials and additional security deposits. You might even get access to a deal or promotion because of your excellent score.
10 Ways to Improve Your Credit Score
The best way to navigate the world of credit is to build strong credit history. These are some tips for getting your credit score higher and keeping it that way once you reach the top. Try each of these 10 tips and examine your credit score over a period of about three months. You should see a significant increase in your score by that time.
Now you know some of the benefits you can get from having a positive credit history and a high score. These are 10 ways that you can build your credit history and keep it up to standard at all times.
6. Add a Little Extra Each Month
You can give your credit score a nice boost by adding a little extra money to your payments each month. You should always try to double up your payments if you can. If you can't do that, then you should at least make your payment plus the interest that the company charges you. That way, a significant amount of the payment will go to your principal, and you can pay your account off faster.
7. Consolidate Your Debt
You might want to consider consolidating your debt if you have more than two accounts on your profile. Consolidations can do wonders for you. They can organize your credit accounts so that you only have one payment to remember each month. They can save you money because they often have much lower interest rates. Additionally, they can help you to raise your credit score. Think about applying for one if you want to organize your profile a bit more.
8. Hire a Credit Repair Company
You can always consider hiring a credit repair company if you don't feel that your credit score is where it needs to be. A credit repair company can help you build strong credit by giving you tips and advice. They can also negotiate with your lenders and file disputes for you in some cases. It's worth a try to contact such a provider and request a consultation. You might be able to gain a lot of points by taking the initiative.
9. Refinance Your Home or Car
Refinancing your home or car is an excellent way to help your credit profile. It's also a great way to save you money. Oftentimes, consumers obtain high-interest car and home loans just to qualify and get what they need. You should consider refinancing if that's your situation. You can typically refinance a car once you've made at least six months of timely payments to your lender. In some cases, you might be able to refinance right away.
Search for refinancing deals that have a much lower interest rate than the one you currently have. You will see that your monthly payments will be lower than they were before, and you will have more money left over to make a dent in your other debt. You might be able to refinance again after you've paid the new lender for six months. You may have access to an even lower interest rate at that time.
10. Avoid Opening Too Many New Accounts
The length of your credit history is another vital component of your credit score. It makes up 15 percent of your credit score. Thus, you need to be very careful when you apply for new credit. New credit makes the length of history go down drastically, and that can cause your score to drop. That's why sometimes people see a brief dip in their scores after they get a debt consolidation loan. The brief dip is worth the benefits of the consolidation, in most cases.
Your goal here should be to try to keep your new accounts down to only one every two years. That will keep the lenders happy and keep your credit score in good standing.
1. Pay Bills on Time
Your bill payment history makes up 35 percent of your entire credit score. Therefore, it should be your priority if you want to build good credit history. Commit yourself to never being late on a payment. Late payments bring down your score, and they will stay on your report even after you catch up. You can use a strategy to prevent yourself from getting behind. One thing you can do is to sign up for autopay so that your monthly payments come out of your account automatically. You can also set reminders to make your payments a week before they're due. Your timely payments will keep your credit score afloat.
2. Keep Balances Low
It's also important to keep the balances on your credit cards low so that you don't set off red flags. Creditors have an idea of what they consider responsible handling of credit. They like to see accountholders spend no more than 30 percent of the total balance at one time. Therefore, you should only spend $90 on a card that has a $300 limit. Pay your balance down after you make that $90 purchase. Use that mentality with all of your cards and lines of credit, and your score will stay high.
3. Don't Make Unnecessary Inquiries
You create a credit inquiry every time you submit an application for a car, home, credit card, personal loan, and the like. Creditors don't like to see any more than two inquiries during a two-year period. Sometimes, you can make four inquiries and still maintain a positive report. Any more than that might make lenders think that you are desperate for cash. Furthermore, inquiries take points away from your credit. You can get anywhere from one to three points for making one inquiry. It's possible to get more.
Inquiries stay on your credit report for two full years, but they lose their detrimental effect over time. Sometimes they stop affecting your score after the first year.
A good way to avoid making too many inquiries is to try prequalifying first for a desired loan first. Most prequalifications don't hurt your credit score. You could also contact the lenders and ask them what their credit score qualifications are for the product you desire. Look for a tool that will help you "find my credit score," and then see if your score meets the criteria.
4. Mix Your Credit Up
The mix of credit types on your report makes a difference in your score, as well. Lenders like to see that you have an installment loan, a revolving account, an auto loan, a home loan, etc. Your score will be higher if you have a good mix of all credit types and not too many of the same kind.
5. Review Your Credit Report Frequently
You can keep your credit report clean and keep your score high if you get your credit report and check it frequently. A good rule-of-thumb practice is to check your credit report at least once every year. It will be even better if you can do it twice each year. The credit bureaus entitle you to a free credit report once a year. You can also receive a report if a lender denies you credit.
One way to obtain your credit report is to visit the sites of the three major credit bureaus and request them. You may have to answer some personal questions to prove your identity. You should then be able to obtain your report.
Review your report for errors such as name misspellings, wrong address information, inaccurate account balances, and accounts that you don't remember opening. You have the right to dispute anything that you feel is incorrect on your credit report. The bureaus will then have to investigate the matter. They will correct the information, and they may erase accounts that they can't prove are yours. Your score will increase drastically if the bureau ends up erasings a bad account.
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Conclusion
Now you know why it's so crucial that you maintain a positive credit score. A good credit score can make your life much easier in many ways. You can contact us if you need help with managing your current credit or obtaining new credit. We are a consumer advocate who connects ourselves with many lenders and financial education providers. We are not a lender, but we can assist you in finding the most suitable home loans, auto loans, or debt consolidation loans. We can lead you in the right direction if you need credit counseling or advice, as well.
Additionally, we have an entire library of information about credit and debt. Contact us if you need anything at all pertaining to your financial profile. Our specialists are ready and willing to assist you.