Get a Good Credit Rating
Good credit plays a major role in a person’s financial life. Not only is it important for getting a credit card or qualifying for a loan, but also for less evident things like renting a car, getting mobile phone service, and even getting a job.
A credit score is simply a number that represents the likelihood of a person repaying a loan on time. It makes use of information from a person’s transaction history to predict their risk as a borrower.
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The credit report, which is an explanation of a person’s credit history, states the time and place a person applied for credit, as well as who lent them money. This report also indicates whether a person paid off a debt and if monthly payments are being made on time.
For additional information, please see our credit rating reports (PDF):
How to Get Good Credit
There are no secrets or complex strategies to building good credit. The following are a few guidelines that can help people improve their credit rating.
- Pay Bills Every Time & On Time: Making timely credit card payments is one of the biggest contributing factors to a person’s credit score. Some banks offer payment notifications through online banking portals that can send text or email messages to remind customers of payment deadlines. People can also enroll in automatic payments through loan providers and credit card companies to have payments automatically debited from their bank account.
- Avoid Getting Close to the Credit Limit: Credit rating models examine how close a person is to being "maxed out,” so it’s important to keep balances low in proportion to the overall credit limit. Credit experts recommend keeping one’s use of credit at nothing higher than 30 percent of the total limit. Contrary to popular belief, revolving credit cards are not required to get a good credit score — paying off monthly balances is.
- Keep a Long Credit History: Credit ratings are based on experience over time. The more experience one has with sending in credit card and bill payments on time, the more information there is to determine whether a person is a credit risk. It’s also not a good idea to open multiple new accounts too rapidly, as doing so will lower a person’s average account age, which will have a bigger impact on one’s scores if they don’t have a lot of other credit.
- Apply for Credit Only as Needed: Credit scores refer to a person’s recent credit activity as an indicator of one’s need for credit. If a person applies for a lot of credit over a short period of time, it may seem to lenders that their economic circumstances have experienced negative change.
- Manage Credit Cards Responsibly: Having installment loans and credit cards — and paying the bills on time — will help improve one’s credit rating. Someone with no credit cards, for instance, is more likely to be higher risk than someone who has been responsible with their credit card management over time.
Having savings is also critical to earning good credit. It gives people financial freedom, pays for emergencies, and can contribute to a higher credit score. Since saving takes time to build, it’s a good idea to start as soon as possible. Having strong credit can help someone qualify for lower interest fees and rates, freeing up extra money to set aside for things like retirement and unexpected expenses. Fortunately, having good credit isn’t as difficult as it seems. By following these guidelines, it is possible to build and maintain a credit history that will enable people to get the credit they need, when they need it.