How you use your credit is an essential part of your financial history. Undeniably, lenders and credit card issuers use your credit score to determine whether or not you are qualified for a loan. Besides that, landlords may also use your credit report to know if you will be a good tenant. Even some employers also use this number to determine if you are good at financial decisions.
With that said, you should maintain a good credit score and or at least prevent bad credits. To help you get started, here are five doable ways you can do to manage your credit history.
Knowing Your Credit Score
A credit score is a statistical number that evaluates your creditworthiness based on how likely you are to repay your loans on or before your due date.
Concerning this, understanding your credit report is essential to help you determine whether or not you should reconstruct your paying habits.
To determine your credit score, you may talk to a loan officer, contact your credit card company, or get online credit score services.
Moreover, here are some of the essential things you should know about your credit score:
- Credit scores generally range between 300 to 850. So if you got 700 or more, that would be considered a good score. On the one hand, if you got 600 below, that will be a bad one and will restrict your qualification for a loan.
- You can get your credit score from your credit card company for free on your monthly statement. Or, you can get it through an online portal.
- Various factors can affect your credit scores, including your current unpaid debt, bill-paying history, the numbers of loans you have, your credit ratio, how long you’ve held your loans, and your new applications for other debts.
Reading Your Contract
Before taking out a new loan or swipe your credit card, you should read the contract first. By doing so, you will know what you need to do to stay on good terms with your debts. With that said, here are some of the essential things you need to look out for when reading your loan contract to avoid additional charges:
- Acceleration clause. This note is a contract provision which states that a lender may increase your interest rate if you don’t pay your balance on time. He or she might require you to repay all your remaining credits if you didn’t meet a certain requirement.
- Penalty APR (Annual Percentage Rate). If you fail to pay your loan balance on time, the credit card issuers may increase your annual percentage rate.
- Balloon Payment. A balloon payment is a loan that has a small monthly payment but with a large amount to pay at the end. You should look out for this because if you can’t be able to pay the final balance, the lender may initiate foreclosure or repossession.
With these things in mind, it is indeed essential to understand the loan agreement before signing the contract.
There may be hidden charges that you overlooked, and it could bring you to critical situations such as having bad credit or worse, giving up one of your possessions.
Avoid Making Late Payments
Making payments on or before your due date is one of the common things you can do to prevent bad credit.
Numerous monitoring and reporting agencies will alert the credit bureaus if you are delinquent on any payment, including your bills and debts.
Moreover, if you’re late on paying for your credit card or loan — particularly if it is more than 30 days past the due date — your credit score can be greatly affected. Hence, the more late payments you have, the greater your credit score will drop.
Not only that, failure to pay for your debts and bills on time makes it harder for you to catch up. With that in mind, it is indeed essential to be watchful on due dates and stay current on your payments.
Fixing Your Credit
Another doable way to prevent bad credit is to fix your credit score. To help you get started, here are some of the essential things you can do to repair your credit and improve your credit score.
- Remove errors on your credit report Once you get a copy of your credit report, you should check it closely to see if there are duplicated or misreported debts. If so, you need to fix it immediately. With that said, you should contact a credit reporting agency and go through their disputing process. But, if they can’t do something about it, you can directly contact the lender and have them fixed it. Detecting these types of errors can definitely improve your credit score.
- Catch up with past due or delinquent debts. If you have past due debts on your credit history, these are likely affecting your credit score. In this case, you should contact the lenders of those debts and work out a repayment plan. By doing so, you can pay it off and eventually remove the bad debts from your credit report.
- Talk to Debtors to Clear Bad Reports. Though creditors are not required to give information about your debts history to credit bureaus, you may convince them to modify certain statements on your credit report. You may talk to your loan officer or lender to know if you can negotiate a solution to clear your bad credit history.
- Visit a Credit Counselor. If you think you can’t fix your credit all by yourself, you can ask a credit counselor for help. Since most of the credit counseling services are non-profit, you can ask for financial advice in person, online, or over the phone.
The tips above are just some of the ways to manage your credit history. Additionally, if you have several loans under your name, it is important to sort them out and come up with a repayment strategy.
You can also apply for personal loans for bad credit if you are having a hard time qualifying for a loan to pay off your debts because of your credit history.
Building Healthy Savings
Although your bank balances can’t directly lift your credit score, these accounts will save you from drowning in financial problems that may lead to bad credit.
Often, significant changes in your life, such as unemployment, divorce, injury, and loss of loved ones, can make it hard to keep your credit in good shape.
Thus, one of the best things you can do is to build healthy savings and prepare yourself as well as your pocket for any unexpected things that might happen.
Good credit is one of the things you may not realize how important until you need it. With that said, as early as now, you should do something to maintain your credit intact and keep your credit score as high as possible.
As such, the ways mentioned above can help you get started and prevent having bad credit.