Using consumer credit wisely helps you qualify for loans and results in a higher credit rating. Sadly, some consumers don't know how to manage their credit and debt responsibly, which often leads to credit issues. Whether you are looking to improve your current rating or maintain a good one, there are solutions to ensure the best credit score possible.
Use Your Credit Cards
Managing consumer credit well doesn't involve locking your credit cards in a safe and never pulling them out. True, this helps if you have spending problems and are trying to lower debt. But in order to improve a low credit score, you've got to occasionally use credit. Rather than impulsively pay for items with credit, plan out purchases and pay off the balance each month.
Stay Away from Your Credit Limit
Maxing out your credit cards or keeping your balances close to the limit can pull down your credit rating and place you in a sub-prime category. Keep balances to a minimum and aim for a utilization of no more than 30 percent. For example, if given a $2,000 credit limit, accumulate no more than $600 worth of debt on the credit card.
Minimum Payments
Asking for a small minimum payment each month is a trap to keep you in debt. Even if your credit card company only requires a small payment each month, voluntarily send in higher payments. This method helps reduce your principal faster, and you'll pay less in interest charges.
Regular Payments
Consistent, timely payments to your creditors and other lenders help improve your consumer credit rating. And if applying for future loans, a good payment record helps you qualify for financing and get the best interest rates. Open statements upon arrival, make a mental note of due dates and make payments (online or through regular mail) several days before they're due.
Shop for Financing
Develop a habit of always shopping for finance deals when applying for mortgage loans, auto loans or other installment loans. Interest rates issued by a lender affect your monthly payments, and keeping payments low often calls for finding the best rate on loans. Ask for free quotes from multiple lenders and compare offers.
Inquire about Rejections
Lenders and creditors reject applications for various reasons. These can include a history of lateness, excessive debts and other credit problems. Ask lenders to explain their reasons for rejecting your application and then order a copy of your personal credit report. Reviewing your history helps you identify areas that need improvement and alerts you to possible fraudulent activity.
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