How to Maintain a Clean Credit Rating

In the consumerist society, credit rating has become a vital part of our identity. Lenders check it when they want to assess your creditworthiness and employers may review your score to check whether you’re a capable and trustworthy professional. That’s why you need to maintain your credit rating clean, in order to be eligible for different types of loans. In this article, we’ll list some of the best tips for balancing your credit spending and keeping your credit rating clean.

Check your credit report regularly

Before you start repairing your credit rating, you’ll need to check it first. Credit companies often make mistakes, so you’ll need to ask for your credit report on a regular basis. Apart from ordinary credit checks, some agencies like Clean Credit can also offer you optimal credit repair plans.

Understand your credit score

Credit bureaus use complex algorithms for creating personalized credit reports. Most of these algorithms take five different factors into consideration when determining your overall score. These factors are:

• Payment history – If you have accounts in collections or you’ve been late with payments in the last several months, your credit score will be low.

• The amount of money you owe – Your credit score depends on your overall debt. If the amount of debt is close to or beyond your approved credit card limit that will drastically decrease your score.

• Credit history length – Contrary to popular belief, a short credit history will lower your score.

• Type of debt – If you have a big debt, your credit score will be much higher when the overall sum has been balanced between many different types of loans. A big debt on credit card or car loan accounts can be dreadful for your credit rating.

• New credit – Every new loan you take will show on your credit rating.

How to improve different credit score factors?

Since credit history represents the largest portion of your score, you should make all of your payments on time. Still, there are a few tricks that can be used by people who have problems with paying off their loans on time.

• When you miss a payment, pay it as soon as possible because each day will affect your score;

• Use savings for paying off the outstanding credit balance;

• Always make sure to let at least two months pass between taking your old credit and opening a new line of credit;

• If you’re a new borrower make sure not to borrow everything you’re approved for;

• If you have problems with paying back your loan, cooperate with creditors and ask them not to send your account to collections;

Practices for maintaining a good credit score

Approved credit will usually reflect your income. You should never get close to the maximum amount of credit. If you want to have a good credit score, don’t use more than one-third of the approved sum. Smart budgeting can help you keep your expenses low, and you can also use your savings for paying back debts.

You should always plan your loans in advance. Abstain from taking several big loans in a short period of time, because one of the most important parameters for calculating credit score is the overall amount you owe at the moment. Even if you need to take several big loans, make sure you diversify the debt, by taking different types of credit.

Also, stay away from opening new credit card accounts since longer credit history improves your score. New cards make your history shorter, which affects your score even if you’ve canceled your old accounts.

Although your credit score is very important when it comes to taking new loans, you shouldn’t be obsessed with this matter. Apart from credit score, lenders also assess your employment status, the size of your income and the amount of the down payment. Most small changes don’t affect your ability to borrow money, and by following the steps we’ve described above, you’ll be able to maintain a clean credit rating that will make you eligible for many different loans.