Good Credit Score When you get ready to rent your first apartment or buy your first car, you may be asked to provide evidence of your creditworthiness. This is because lenders evaluate potential borrowers based on their credit history, a measurement of your ability to responsibly manage debt assigned by the lender and recorded on your credit report.
A good credit score
lets lenders know you are a reliable borrower who will repay what you borrow as agreed. Here are the key Good Credit Score components of building a good credit score.
Pay your bills on time
While there are many different credit scores, generally, the higher the percentage of bill you pay on time, the better your credit score. If you miss a payment, your score will drop like a rock, even if your financial situation never changed.
Some people start with a secured credit card, or cash-secured credit card, where you put money down to cover the card’s balance if you don’t pay it in full each month.
Keep your balances low
Credit card balances are factored into credit scores, even if you pay them monthly. The amount of your balance relative to your credit limit is what’s important. It would help if you aimed to keep your balance below 30% of your credit limit to demonstrate responsible use of credit. If your credit card balance is above this amount, you are damaging your credit score and costing yourself real money in interest payments.
You can also protect your credit score by transferring a balance to a card with a lower interest rate.
Stay away from hard inquiries
Hard inquiries are the number of times a lender pulls your credit report. This is what happens when you apply for a new loan. If you have a healthy credit history but apply for many loans, your credit score may suffer.
Generally, the more hard inquiries you have on your record, the greater the impact on your credit score.
Maintain a long credit history
Having a long credit history is another important factor in credit scoring. One way to do this is to keep your oldest account open and active: your first credit card. If you are thinking of closing an old account, keep in mind that your length of credit history accounts for about 15% of your credit score.
Building a good credit score is a crucial financial skill for young people to master, and it will serve you well throughout your life. If you are starting, it can be challenging to know where to begin, but with diligence and proper financial planning, you can develop a great credit history and enjoy the benefits that come with it.
Building a good credit history takes time and patience, but if you follow these tips, you will be on your way to a great score in no time. In the long run, having a good credit score can save you a lot of money because you get lower interest rates on loans and better terms on credit cards. However, according to the experts at SoFi, you can apply for no deposit credit cards and qualify for a loan.
