If you've been eyeballing that car or need a loan for a home renovation, you want to borrow money with attractive terms. You need low-interest financing to make monthly payments affordable. However, if your credit history has some rough patches, this could cause lenders to refuse you an affordable rate. To qualify for low-cost financing, your credit score needs to be strong, and there are ways to strengthen your credit muscle.
Why Have Good Credit?
You need to have a strong credit history to have a high credit score. When your score is strong, meaning no history of bankruptcy, late payments or heavy debts, it allows you to qualify for the attractive financial rates. Lenders will look favorably at customers who can prove they are able to manage their money responsibly and pay bills and loans in a timely fashion. They will offer these customers the lowest interest rates.
Payment History
Paying your bills on time has the largest impact on your credit, making up 35 percent of your score. Simply changing your habits to pay your cell phone, Internet and cable bills by the respective due date can strengthen your credit score the most. However, if you have a bankruptcy in your past, it will hit this category. Bankruptcies stay on your credit report for 10 years.
Other Tips
There are other ways to improve your credit score. You should order an annual free credit report from a credit reporting agency and review it for errors. You should immediately report any mistakes, such as late payments that are not true, to repair your history. Create breathing room between your credit limit and your outstanding balance. Ideally, lenders want to see your debt be only 30 percent of your credit limit. This accounts for 30 percent of your credit score.
Credit Counseling
If you need help or motivation to get your financial affairs in order, speak to a credit counselor, particularly a non-profit agency. If you are looking at a for-profit agency, review its status from the Better Business Bureau. Avoid those with low ratings and many complaints about excessive fees. Michelle Singletary of PBS recommends that a debt management plan shouldn't cost you more than $50 to set up and $25-30 in monthly fees.
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