Ask anyone with experience in money management about top tips for handling your finances, and you may hear the suggestion to have a high credit score. It’s because a good credit score brings about a slew of advantages that help you strengthen your financial profile for the rest of your life.
In the modern world, this gives you more than bragging rights, and actually delivers the tools you need to survive and succeed. To help you learn more, here's an overview on the hidden power of your credit score and how to unlock it.
Your credit score is essentially a summary of your financial management in the form of a number. The higher your credit score, the better you are at handling your money and associated commitments. Besides helping you get faster approval for loan and credit card applications, a high credit score also gives you a leg up when finding housing as well as securing specific jobs. But that’s not all: A good credit score can positively affect your financing terms and rates as well.
Credit score ranges usually fall between 300-850. The mortgage FICO score, credit card score, and others loans score all follow this model. But you only start seeing benefits like better loan terms and low interest rates when your credit score ranks in or above the “good” range of 670-739. If your credit score goes above this range in the “very good” or “excellent” tiers, you can enjoy better rewards like even lower interest rates.
If you have a low credit score, it’s not the end of the world. Depending upon the reasons for your low score, you can improve it in a few months with consistently good financial activities. You can think of this as using a financial planning tool to have a better grasp on your money.
This is one of the easiest yet one of the most effective ways to improve your credit score. If you have student loans or credit cards, you should make their monthly payments on time. This consistent action can indicate good financial habits and allow your score to climb up gradually but surely. You can adopt various strategies for managing debt in order to follow this tip without any stress.
In order to improve your credit score, you need to show that you can handle different types of credit products with equal ease. This brings you to the requirement of having a diverse credit mix, which refers to the types of credit accounts you have. To follow this tip, you should have at least one installment credit account like a student loan and a revolving credit account like a line of credit.
When you have multiple credit accounts, there are higher chances of you overusing your credit. But this practice can negatively affect your credit score. At any given time, you should not use more than 30% of your approved credit card or line of credit balance. This means that when you have to make a major purchase, you may want to dig into your savings account instead of your credit cards.
While having a good credit mix and lowering your credit utilization requires you to have multiple credit products, you should be careful about applying for new loans and credit cards. It’s because each time you apply for them, you get a “hard inquiry” that can lower your score for a few months at the very least. By using money management solutions like a digital cash envelopes system to cover your expenses, you can easily follow this tip.
Like maintaining a good credit score to access better loan rates and financial deals, investing in private number plates can be a strategic financial decision. Some plates appreciate in value, making them a unique asset, much like a good credit score increases wealth-building opportunities.
You should also understand the importance of monitoring your credit regularly. The reason is simple: When you track your credit, you can easily spot incorrectly reported transactions like falsely delayed payments and dispute them. This saves your credit score from taking a hit because of erroneous reporting. You can get free weekly reports from any of the major credit bureaus to monitor your credit.
After going through this quick guide, you can have a better understanding of how your credit score can set the stage for your comfortable future. From there, it gets easier for you to navigate this road to ideal financial freedom.
