5 Tips for Building a Strong Credit Rating

For the most part, the average consumer is unable to build a nice cash reserve which enables them to pay cash for large ticketed items. Hence, most buyers rely on credit for home and vehicle purchases. There are several benefits of maintaining a high credit score. Of course, some people underestimate the importance of a high credit rating. As a result, these persons use credit carelessly. Negative credit ratings can greatly impact your ability to buy a home or finance a new car. Although many lenders approve loans to persons with low credit scores, these types of loans have unfavorable terms. Instead of accepting bad credit, strive to build a strong credit rating.

Pay Bills on Time

The obvious tip for building a higher credit rating involves paying credit card statements and invoices before or on the due date. When creditors receive late payments, this information is reported to the credit bureaus. Even if a payment is only a few days late, creditors automatically report that the account is 30 days past due.

If trying to buy a home or new car, late payments can decrease your chances of getting approved, or result in a higher interest rate. The key to avoiding late payments is not waiting until the last minute to submit payments. On average, credit card statements are mailed at least three weeks before the due date. If possible, attempt to mail in payments within a few days of receiving the statement. Another tactic involves scheduling automatic bill pay.

Avoid Acquiring Too Much Debt

Maintaining high credit card balances creates multiple problems. For starters, acquiring too much debt makes it harder to pay down the balances. Consumers with several credit accounts may also have difficulty managing multiple account payments. Even if you can afford to pay the minimum payments, keeping credit cards near their limit can potentially lower you score by 70 points. The more available credit you have, the higher your credit score.

Beware of Unnecessary Credit Inquiries

Unfortunately, many consumers are unaware of the danger surrounding credit inquiries. Before issuing credit, lenders will pull your credit report. This is called an inquiry. For every potential creditor that checks your credit, your score is lowered 10 to 12 points. If you receive ten inquires within a month, expect a credit score decrease of at least 70 points. Instead, limit your number of credit report inquires. If shopping around for a mortgage or auto loan, use a broker. With a broker, buyers can receive multiple offers from different lenders without having their credit repeatedly checked.

Never Close Older Credit Accounts

Closing a few credit accounts seems sensible, especially when trying to simplify your finances. However, this decision can be potentially damaging. Credit scores are based on many factors. One such factor is length of credit history. When choosing to close credit accounts, many consumers select the credit card with the highest limit. In most cases, credit cards with higher limits have longer histories. Closing older accounts will shorten your credit history, which will also lower your credit rating.