A credit score is a critical component in your financial well-being. It can affect everything from whether or not you can get a home loan to how much you pay for car insurance. So, if your score is not where you want it to be, it can get pretty frustrating. The good news is that, like almost everything in life, improving your credit score is simply a matter of making better choices. In this blog post, we’ll take a look at five of the most important factors that affect your credit score.
What is a Credit Score?
A credit score is a number that can use to measure a person’s creditworthiness, which can vary from 300 to 850 (refer to figure 1.1). Basically, it’s calculated based on an individual’s payment history. In simple words, a credit score is used by banks/lenders to evaluate the probability of a borrower reimbursing a credit on time whether or not you’re a good candidate for a loan.
Tips: The higher the amount of credit score, the higher the chances of getting approved for a loan.
Figure 1.1 Score Table (Source: Hong Leong Bank)
What are the factors that affect it?
- How much debt do you have? The amount of debt you have on your credit card accounts can affect your score. The more debt you have, the more difficult it is to get a good credit score.
- How long it has been since you’ve paid your bills on time? If you have a history of not paying your bills on time, this will affect your credit score.
- How long it has been since you last had a credit score? A credit score is based on your credit history. If you haven’t had a credit score in a while, you’ll have to go through the process of getting one again.
Ways to improve your credit score
If you’re looking to improve your credit score, there are a few things you can do to start.
First, make sure you’re using your credit cards and loans responsibly. Pay your bills on time and in full each month, and don’t use your cards to max out your credit limit. Also, make sure you’re not taking on too much debt in one go – try to spread out your credit card debt over several months to avoid getting into a difficult financial situation.
Finally, keep your credit utilization low. This means that your total amount of credit used (including outstanding balances and new credit card credit) is no more than 30% of your total credit limit. This is important because it shows that you’re using your credit responsibly and that you don’t have any high-interest credit cards or loans that you’re struggling to pay off.
Conclusion
Your credit score is an analysis of your credit report, which is a history of how you’ve paid your bills. You can dispute negative information and have it removed from your credit report by contacting the credit bureaus directly.
If you have a lot of debt, but pay it off every month, this can be good for your report because it suggests that you have a high income and stable employment. However, this can help to build up an excellent credit rating and make getting approved for loans easier.
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