According to a report, about 19% of cardholders in New York owe more than $10,000 credit card debt. About one in five residents of New York have a five-figure credit card balance. This means that almost one in five people need a debt management plan in New York. Be it debt settlement or any other way to manage your debt, your credit score plays a very important role. Not only in repaying debt, but a good credit score is also necessary to get a loan. Therefore, building a good credit score is important. A credit score can do miracles in the financial world. In the article below we have listed a few ways to build a good credit score.
Aiming for a good credit score? Here is how:
1. Pay bills on time
The least you can do to not daunt your credit card score is to make payments of all your bills on time. Paying your bills on time helps you build a good credit score. A late payment or a missed payment daunts your credit score. These appear as negative information on your credit report for seven years. However, the influence of this negative information decreases with time. That means that if you have missed a payment recently, it is going to affect your credit score more than the fact that you missed a payment five years ago. Therefore, for a good credit score, try to pay all your bills on time.
2. Make loan repayments on time
Not only bills but your repayment of loans also impact your credit score highly. Be it a car loan, mortgage, student loan, or any other kind of loan, you should repay those on time. Try to not miss out on any installment. Missing out on loan payments put a negative impact on your credit score.
Paying your installments on time shows that you can manage your finances. This history of your loan repayment also gives your lender assurance that you pay your debt on time. Therefore, repayment of your loans is important.
3. Do not max out your credit
Not maxing out your credit card means not using the limit of your credit card. A credit utilization ratio is an important number that affects your credit score. Its calculation formula is adding all your credit balance at any given time and then dividing it by the total credit card limit. For example, if your credit card limit is $20,000 and you have a credit card balance of $2,000, your utilization ratio comes out 10%.
Maxing out your credit card is considered to be careless about your money. That implies that you do not know how to manage your finances and end up using the credit card to the limit. Especially, if you miss out on your payments frequently, having a low credit card balance is necessary for a high credit score.
Having a utilization ratio of less than 30% is considered good. Therefore, you should try to keep a low credit card balance and make payment of your credit card bills on time.
4. Try to keep only one credit card
It is tempting to use multiple credit cards, especially when you are new to this game. But having multiple credit cards has its own demerits. Multiple credit cards mean you have a higher credit limit. A higher credit limit means you can spend more which will be harder to pay.
Failing to pay even one balance of your credit card sends an inquiry into your credit card. Too many inquiries into your credit cards affect your credit score. Similarly opening new credit cards lowers your average credit age. Credit inquiries and credit age both account for 10% of your credit score which means having multiple credit cards has a 20% effect on your credit score. Therefore, apply for new cards only when you need them badly. Do not get trapped with fascinating ads telling you only the positives of taking a new credit card.
5. Do not close multiple credit cards
You should try to use a minimum number of credit cards. However, if you already have multiple credit cards and they are not costing you money then you should not close them. Closing your other credit cards will increase your utilization ratio which impacts your credit score negatively. Therefore, do not close any credit card unless it is stealing money from your pocket.
6. Spend what you can pay
Having self-discipline in spending does not only helps you with your savings and finances, but it also helps you to build a good credit score. Make spending responsibly a habit and stick to that. Spending what you can pay at the end of the month saves you from debt. Missing out on a payment or having debt that you cannot pay affects your credit score in a negative manner. Do not use your credit card to its limit. While spending, always keep in mind that you will have to pay this balance also. The same goes for loans. Never borrow money more than that you can pay.
Having a good credit score has its own importance in the financial world. A good credit score helps you get a better loan amount with lower interest rates and EMIs. This also helps you at the time of repaying a loan. A good credit score makes you eligible for different ways to clear off your debt. There are many companies that offer a debt management plan in New York. All of them need a good credit score to offer you better deals. From debt settlement to filing for bankruptcy, your credit score helps everywhere. Paying your bills on time, not missing any payment, borrowing only what you can pay, are a few steps to build a credit score. You can follow the above-mentioned steps to build a good credit score.