Do you know your credit score? Well, if you do not, then you should find out soon because it can actually affect you – and not in a good way. Unfortunately, most of us do not take this into consideration until it comes back to haunt us in the future, especially when it comes to procuring loans.
To those who are uninitiated, your credit score measures your financial responsibility which gives financial institutions a gauge on whether you are a reliable payee. Paying your monthly installments late and using your credit cards excessively will impact your credit score negatively.
Therefore, always make sure that you make your payments on time and reduce your credit card usage to show that you are a responsible payee. Any misdemeanor in the payment history will be reflected in your credit reports, which will make it difficult for you to get your loan applications approved.
Don’t worry, having a bad credit score is not the end of the world. Here are five things that you can do to improve their score over time.
1. Pay Your Bills on Time
This should be obvious, but late payments are credit score killers! Make sure that bills are paid on time to give lenders a good impression. Overdue payments are like stubborn stains – they can stay on your credit report for years.
Keep track of the due dates of all payments to ensure that they are paid punctually. If you are someone who is always out and about, opt to schedule automatic transfers or perform these transactions online.
2. Avoid Too Many Hard Credit Inquiries
You should also prevent yourself from applying for any form of credit or personal loans too often within a short time span. Do you know that every time you apply for credit, you are actually shaving points from your credit score?
These inquiries will be recorded on your credit report and will stay there for a few years. Hence, too many hard inquiries within a short period of time suggests to lenders that you’re desperate for credit and are having trouble managing your finances.
3. Have an Active Credit Profile
Having no track record is equally as bad as having a bad one because lenders do not favour borrowers with zero credit history. In other words, having an active credit account is a crucial step in improving one’s credit score.
Having an active credit account and a proven track record shows that you are a responsible payee. To start off, go for a small commitment like opening a postpaid plan or Internet account under your name to make sure that your first step towards improving your credit score is manageable.
4. Keep Your Balance Low in Relation to Your Available Credit
One major factor that affects your credit score is how much revolving credit you have against how much you are using. The rule of thumb is the smaller the percentage, the better. The optimum level is 25% or lower so make sure that you pay down your balances and keep them low.
5. Review Your Credit Report Regularly
Take the effort to check your credit report regularly, at least once a year to ensure that all the information on it is accurate. Checking for errors is more important than you think as they might affect your credit score without you even knowing it.
A credit profile isn’t damaged overnight, and you cannot expect it to improve in that amount of time either. However, by implementing the right measures and being a responsible payee, your credit score will gradually improve over time.
This article was written by Vino K from CompareHero.my, a site dedicated to increasing financial literacy and helping you save time and money by comparing credit cards, personal loans, and broadband plans in Malaysia.