How to Build and Maintain a Good Credit Score

A good credit score is important and more than just a number. This is not only a number because it has the ability to open new financial opportunities that any individual with a low credit score might miss and those financial opportunities such as favorable loan terms, getting low interest on different types of credit and loans, and getting even better insurance premiums. Whether you are trying to build a fresh credit score or maintain an existing one, it is only possible when you see the factors affecting it and strategies to improve it and how they are crucial to building and maintaining a credit score. Thus, in this guide, we are going to explain the steps to develop and maintain a good credit score, ensuring you have the financial flexibility you need. 

What is a Credit Score

Before building and maintaining a credit score, it is crucial to understand what is a credit score and why it matters. However, your credit score is just a numerical representation, it tells your creditworthiness and the kind of credit history you have in the past. The credit score range falls between 300 to 850, and the individual who has a high credit score will get more favorable loan terms from the lender or bank. So, here are some factors based on which the credit score is calculated.

Payment History

Payment history is considered one of the most important factors that ensure to lender your ability to repay the loan on time. 

Credit Utilization

Credit utilization is the amount of available credit that you are using for your different purposes. To keep your credit score high, low utilization is very important.

Length of Credit History

The maximum length of credit history ensures that you are capable of managing credit properly. 

New Credit 

If you are opening a different new credit account in a short time, this can impact negatively on your credit score.

How You Can Build a Good Credit Score

Building a credit score for any individual who wants to start from scratch requires patience and careful financial planning. You can follow these steps to build your credit score easily.

Begin With a Secured Credit Card First 

In the beginning, when you step into the credit field, a secured credit card is a super idea to start your journey for building a credit score. Using credit cards regularly and properly, and paying the bill in full each month will help you in building your credit score and positive payment history. It should be remembered that credit cards can work positively and negatively when used responsibly, can build your credit score high, and can accumulate debt when used irresponsibly.

Apply For Credit Builder Loans 

When you aim to build a credit score, you should also apply for credit builder loans, as these loans are designed to help individuals build credit scores even from scratch. The loan amount is transferred to a locked savings account. The money is only available after you pay monthly payments. Some lenders even release the loan amount at a time but others only after making monthly payments. The loan amount might range from $300 to $1000. These loans are easy to qualify for the first-time applicant and improve your bad credit score. 

Credit Utilization Should Be Lower

Credit utilization also impacts your credit score and to build it, you should keep your credit utilization always low. As it is the percentage of your credit limit, and it should be low even by 30%. This proves that you can manage your credit responsibly and increases the chances of improving your credit score. Some financial experts even recommend that if your credit card has a $2000 limit, you should try to keep it around $400 to $500. 

Tips For Maintaining Good Credit Scores 

Once your credit score turns into a good one, now you need to make an effort to maintain it which is an ongoing process. Let's check the tips that help to maintain your credit score.

Pay Bills On Time 

Your bill payment history is one of the most important factors that contribute to your credit score. When you miss even a single payment or pay it with a penalty, it hits your credit score negatively. So to maintain your credit score, you should never miss a payment. Most of the time, it is also recommended that bill or monthly payments should be put on autopay mode so that no penalty can occur. 

Only Apply For Credit You Need

Never apply for a new credit account that you are not required to. When you apply for a new credit account it results in a hard inquiry for your credit score which might temporarily lower your credit score. The credit bureaus notice the effect of each application but if it is applied too frequently the negative impact can be seen. Lenders might also reject your application as it is assumed that you will be unable to pay your loan amount. 

Track Your Credit Report Regularly 

It is important to track your credit report regularly because it allows you to find errors and then you can easily correct your errors. You are allowed to get your credit report once a year from the major credit bureaus. If you find any mistake, you can dispute it and prevent your score from affecting. 

Manage Your Credit Utilization

It is very important to manage your credit utilization and even if you have high credit utilization, keep it low. You should try to pay off your balance in full each month to keep your credit utilization low. If you do not do so, your credit score might be affected negatively. At least you should try to pay more than your minimum amount so that no negative chance can hit your credit score. 

Limit Your Hard Enquiries

Hard Inquiries also play a great role in maintaining your credit score. Hard inquiry also called ‘hard pull’ might occur when have a request to show your credit file while applying for a new credit card or loan by the lender. He analyzes your credit file and determines how much risk there is to approve your loan. This is called inquiry but too many inquiries made by the lender might hurt your credit score. So, be selective when you apply for a new loan or credit. 

Conclusion

As we know building and maintaining a credit score is not possible with a magic stick but it is a long-term commitment. To build and maintain your credit score, you need to take care of many factors related to your credit score and know how these factors affect your credit score directly or indirectly. If you follow these strategies, you can achieve a good and strong credit score which will help and serve you throughout your financial life. So, it is important to be consistent and take responsible and smart financial actions, which will help you build and maintain your credit.