What goes into getting good credit scores?

Maintaining a good credit score is essential—particularly if you are considering the purchase of a new home or a car, hoping to get good insurance or even applying for a new job. Our financial history is greatly influenced by our credit scores and your credit reports are a great reflection of this. Ignoring you credit scores can actually lead to the rejection of your loan applications or higher interest rates, on the off chance that your application is accepted.

Creditors use credit scores to base financial capability

Credit bureaus such as Experian, TransUnion and Equifax provide creditors and lenders with the reference material needed to cross check your financial capability when you are taking out a loan. This is why a regular credit check will allow you to review the details of your credit history and assess whether or not your loan is possible. Scores can range between 350 and 850 and you have to maintain your score consistently to earn good credit reputation.

Here are some things to avoid:

Late payments
Late payments can easily ruin your credit ratings. Being irresponsible with your bills will lead to them piling up and making it harder for you to manage its payments. Late payments contribute to 35% on your credit score, over a third of your entire credit score so it’s essential that you avoid it.

Unpaid balance on your credit cards
Your credit cards should not have large unpaid balances. Spending above 40% of your credit card balance will greatly affect your debt utilization ration. Responsibly managed credit means charging only the amount which you can afford to pay and will reflect positively on your credit report.

Closing a credit line
Credit scores will suffer greatly whenever you cancel a credit card due to increased interest rates and especially if there is still unpaid balance on it. Debt utilization ratio will increase if you close a credit card with zero balance on it, which will lead to you being rejected for new credit card.

Defaulting
Overdrafts, bankruptcies, foreclosure and write-offs will evidently reflect negatively on your credit reports and therefore, your financial reputation.

Make credit check a habit
Do not dismiss your credit statement—it is a very important document that should be reviewed whenever you can. Credit reports contain your history and details all your financial activity, making it an important reference used by creditors, banks, lenders and other institutions.