Written By Aysha Chaudhry
Now most of us know that it’s important to have good credit. But do we know why it is so important? Your credit score is a representation of your financial health (how timely you are with your payments, how much debt you have) and essentially shows a lender how risky you are as a borrower.
That means with a lower credit score, lenders see you as higher risk. They then charge you higher interest because they see you as more likely to default and not be able to pay them back. Having a low credit score can be costing you hundreds, even thousands, of dollars in interest on loans, mortgages and credit cards.
So what can you do to improve your credit score? Check out some of the surprisingly simple methods below:
1. The first step is to know your credit score, and make sure it’s accurate. You have 3 different credit reports, one through Equifax, one through Experian and one with TransUnion. Especially with the recent breach in Equifax’s system, it’s good to stay on top of your score and make sure there is no inaccurate or suspicious activity. You can check your score once a year with the above bureaus, so a good piece of advice is to check with one every four months, so you can stay on top of your report.
2. Spend less than 30% of your credit card limit. If you’re using more than that, creditors see this as you stretching your means. If your limit is relatively low and you feel your spending is under control but you’re still hitting the 30% ceiling, call into your bank and see if they’ll raise your credit card limit. Easy fix.
3. Don’t open new credit cards or credit lines if you don’t have to. Opening a lot of new lines of credit within a short period of time is a signal you might be strapped for cash, and that can raise a red flag for creditors.
4. And last but not least, pay your bills on time! Being responsible with your payments and making your payments on time is always a good thing. Consistently paying your bills in a timely manner over the years is the solid foundation for good credit.