5 Tips You Can Do To Avoid A Bad Credit Score

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Having a bad credit score comes with a lot of disadvantages. Besides a higher chance that you will get rejected for your loan application, you will most likely be offered loans and credits with a high-interest rate. 

Home creditors and landlords see you as a risky client if your credit score is less than stellar and you happen to be looking for a new place to live.

To set yourself up for success, you need to maintain a good to excellent credit score. Now, the question is, “how do you maintain a good credit score?” The answers are simple and quite practical. Consider following and practicing these tips to maintain a high-quality credit score:

1. Check Your Credit Report For Errors

Your credit report contains all your financial and credit information that the lenders or creditors evaluate to know your creditworthiness. It shows your credit history and your accounts and is the basis of your credit score. 

Because of its importance, it is necessary to regularly check your credit report, inspect each item on it, and make sure all data is accurate and updated.

To access your credit report, you may request a copy from Equifax, Experian, or TransUnion for free by visiting AnnualCreditReport.com online or calling 1-877-322-8228. 

If you spot an error on your credit report, you may dispute this inaccuracy by communicating your complaint by writing a letter to any of the said credit reporting companies.

2. Avoid Taking On Too Much Debt

Too much debt may lead to bankruptcy and stick you with a bad credit score. To avoid this, only open lines of credit when you’re absolutely sure you can maintain the minimum payments that fit within your budget.

Avoid missed payments by completing a monthly budget – every month. A monthly budget is your plan to manage your finances and ensure you pay down your debts and invest for retirement.

Before applying for a new loan, a good rule of thumb is to ensure you maintain a debt-to-income (DTI) ratio of less than 36%. Having a DTI ratio of more than 36% is a red flag to lenders and can also lead to debt that snowballs out of control.

If you plan to apply for a loan online, one option is to check PersonalMoneyStore. This website can help you find credible and reliable online creditors and lenders to get the best rates for a loan, especially if you have bad credit.

3. Pay Your Monthly Bills On Time

To maintain a good to excellent credit score, you must always remember to pay your monthly bills on time. Late payments and missing payments can put a black mark on your credit score since payment history is one of the factors that can significantly influence it.

Your payment history makes up 35% of your credit score.

If you are routinely forgetful, the best way to avoid missing payments is by setting up an automated payment system that pays your bills on time due to your bill payment schedule.

An automated payment system is a financial arrangement that allows the company you owe the payment to periodically withdraw cash from your credit card or bank account to pay your monthly bill.

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4. Manage Your Finances

Managing your finances is one of the essential things you must do to be financially secure and healthy. It can help you ensure that your income sustains your financial needs, and it can also help you manage your debts and credits, thereby securing a good credit standing. 

The proper way to manage your finances involves making a monthly budget, making a sustainable plan for spending or saving your income, and prioritizing building up emergency savings and paying down debt.

In making a budget, you must first create a list of your monthly expenses, including your monthly bills and payments, credits, necessities, and other essential costs. Then, determine your monthly income after tax, and divide this income into your expenses accordingly. 

You may use the 50-30-20 rule budget model to adjust your income to your expenses. 50% of your income should be allocated to your necessities, 30% to your wants, and the remaining 20% of your income should be assigned to your savings and debt payment.  

5. Avoid Maxing Out Your Credit Cards

Each credit card has a credit limit you must avoid maxing out if you want to have an excellent credit score.

Why? Because your credit utilization is one of the factors that determine your credit score. 

Credit utilization refers to the percentage or ratio between the total amount you spend using your credit cards compared to their credit limit. The higher your credit utilization, the greater your chance of having a bad credit score. Minimize the amount of debt you carry each month to improve your credit score.

Takeaway

You don’t want to be rejected for your loan application and be deprived of financial advantages only because you have a bad credit score and standing. 

So, to avoid landing a bad credit score, it would be best if you start practicing some of the tips mentioned above. These tips are all doable and are great for your overall financial health.