5 Tips to Protect Your Credit Score
Among other criteria lenders often rely on credit scores to determine whether someone can repay a loan.
While scoring models can vary, they all work to determine your credit worthiness.
Here are five tips to protect your credit score and improve your chances of getting great deals with lenders:
1. Pay Your Bills On Time
You must ensure AT LEAST six months of consecutive on-time payments to see any difference in your score.
Know your deadlines and pay on time to boost your score.
2. Don’t Close A Credit Card Account
Closing credit cards can negatively affect credit scores.
Or if you need to close your credit card account, reach out to your financial institution first to check whether and how this could impact your credit score.
3. Increase Your Credit Limit
You can call your credit card provider to increase your limit, if possible.
However, building credit doesn’t mean constantly opening new credit. This can also alarm providers and potentially lower your score.
4. Work With Credit Repair Companies
Multiple credit scores and accounts can be a lot to juggle, especially if a credit score falls.
You can work with a credit repair company that can negotiate with your creditors and credit agencies on your behalf to repair or protect your credit score.
5. Correct Errors On Your Credit Report
Everyone is entitled to a yearly free credit score report from each credit bureau.
You can also hire a monitoring service to secure your information.
What Is a Credit Score?
A credit score is a three-digit number based on your credit reports representing your perceived credit risk.
Three credit bureaus are responsible for providing credit providers with your credit reports. These are Equifax, Experian, and Illion.
They each have different credit scoring systems. However, their credit score range all have the common goal of informing lenders whether you have a good score or not.
Your credit score plays a part in helping potential lenders determine if you can repay your loans.
This status can determine your approval for an auto loan, mortgage, credit card, or any other type of credit including small business loans. It will also help determine the interest rate and terms that lenders can offer you.
Credit bureaus can provide a different credit scoring model, reflecting your credit report data and payment history.
How Do Credit Scores Work?
Credit score calculations rely on what’s in your credit reports, including the following:
- The number of credit applications you’ve made
- The money you’ve borrowed
- If you pay on time
Then, it’s compared to the score models from one of the credit bureaus, depending on who your lender is affiliated with. You will need a minimum credit score for specific types of loans.
Each lender has their own criteria. Different credit scores can affect their decisions.
The rule of thumb is that higher credit scores get better deals and interest rates.
Factors Affecting Your Credit Score
These are the different factors that can affect your credit health.
- Credit Usage: How you use your credit accounts affect your credit scores. They will check how much you owe, how many of your accounts have balances, your credit utilisation rate, or the portion of your credit limit you’re using on revolving credit.
- Types of Accounts: You can own many credit accounts or a credit mix. Credit Bureaus will check your revolving accounts (credit cards and other credit lines) and instalment accounts (loans and mortgages). Manage both responsibly to get a good credit score.
- Recent Activity: This checks if you’ve opened or applied for new accounts or loans.
- Payment History: It’s essential to make your payments on time to maintain your credit scores. However, missing payments, filing bankruptcy, or having an account sent to collections, can harm your credit scores considerably.
- Length of Credit History: This considers the average age of all your old and new credit accounts.
How to Protect & Improve Your Credit Score
Damage on your credit record can remain for several years. It can make getting new loans or credit card applications approved harder.
However, most credit scores can be improved. The following are tips to do so:
- Keep your available credit card balances low and manageable. How much you use your accounts can contribute significantly to the scoring factor. A low credit utilization rate can potentially help your credit score over time.
- Make AT LEAST your minimum payment and all your debt payments on time. Missing a single payment can immediately affect your credit score. Late payments are one of the common causes of low credit scores. Try to make the minimum required monthly payment. If you missed a payment, contact your creditors immediately to see if they can offer hardship options.
- Open accounts reported to the credit bureau. Your accounts should be added to your credit report information, no matter how many you have. These include all your instalment and revolving accounts.
- Only apply for credit when you need it. While having many credit accounts may sound appealing, it’s not always ideal. Having too many loans or credit cards, especially if applied for around the same period, could lead to a more significant score drop and be challenging to maintain.
FAQs
Let’s discuss the common questions on credit scores and their importance.
What Is a Good Credit Score to Have?
Your credit score can depend on the credit bureau calculating it since each bureau has different credit scoring models.
If your credit report is based on ranges out of 1,200, then a score above 853 is excellent, while a score above 661 is considered good.
If your credit score ranges out of 1,000, then anything above 690 is excellent, while above 540 is good.
While it’s difficult to stay in the excellent credit scores range, it’s important to try and maintain AT LEAST the minimum to get the loans and interest rate you need.
How Do I Get a Credit Score?
Get your credit score for free by signing up with any of the offical credit bureaus.
Note that there are varying credit scoring models for each agency. However, each scoring model prioritises the same factors that affect your score.
Is My Credit Score Important?
Lenders will decide to give you credit or lend you money.
Knowing your credit score can help you negotiate for better deals or understand why a lender rejected you.
You’re more likely to get good deals from lenders if you have a higher credit score. Lenders like Lumi, however, consider other factors besides your credit score when offering loans.
Conclusion
Whether business loans or car loans, your credit history can greatly affect how you obtain finance.
Be mindful of every loan or credit card you have to maintain a good credit score for future financing options.
