Nowadays, more people have become dependent on credit. Whether you are planning to apply for a new credit card or an auto loan, your credit score plays a major role. It will be easier for you to get approved for a loan if you have a higher credit score. This also allows you to obtain lower rates of interest on your repayments. If you want to enjoy a lower amount for your loan repayment each month, getting a few practical tips to increase your credit score will always come in handy.

Factors that affect your credit rating

There are several factors that affect your credit rating. Your past credit performance is just one of the factors that make up your credit score. If you want to know how your credit score is calculated, you need to be able to determine all the factors that affect your rating.

The first and biggest factor is your previous credit performance. It is said that about 35% of your credit rating is actually based on your credit history. Most lenders want to know if you had been able to pay off your debts quickly or within the specific repayment term. Your credit history contributes to a good credit score, so it is important that you keep your financial histories unblemished. Not paying your bills on time indicates the possibility of making late payments on your present and future debts. Declaring bankruptcy is much worse and will therefore affect your rating negatively.

Your outstanding debt is another factor that contributes to your credit score. About 30% of your credit rating comes from your present state of indebtedness. Your outstanding debt can be determined by the amount that you presently owe your creditors, as well as the credit limit you currently maintain. To determine your present level of indebtedness, the credit bureau will have to look into your existing credit cards, car loans, and mortgages. Ideally, you should keep a low level of outstanding debt, so potential lenders will see you as a low-risk borrower.

Time is another factor that can influence your credit rating. Many creditors prefer borrowers who have had a longer credit history, specially with the same financial institution. As a borrower, you should have at least one account, which has been active for the last six months. This provides the credit bureaus sufficient information to come up with a more accurate rating. This factor contributes to about 15% of your credit score.

Another 15% of your overall credit score is attributed to the types of credit you presently have. An ideal mix would involve credit cards and installment credits such as auto loans and home loans. This shows that you are someone who can handle credit responsibly.

Finally, 5% of your score is based on your new credit applications. As much as possible, you should refrain from applying for new credit if you still have a considerable amount of debt. By keeping your new applications to a minimum, lenders will view you as a responsible borrower.

Practical tips to increase your credit score

By keeping in mind a few useful tips, you can increase your credit score significantly. One of the most basic yet highly valuable tips in improving your credit rating is to always make timely loan payments, at the right amount. By paying promptly, you will be able to steer clear of late payment fees. You will also pay off your debt within the agreed repayment period, placing you in a positive light in the eyes of potential creditors.

If you have some overdue bills, you may be inclined to ignore them, thinking that you can always repay them once you have the resources to do so. However, ignoring your unpaid bills can significantly affect your credit score. The best step to take is to make an appointment with your creditors and to request a new repayment arrangement with them. There is a big possibility that your creditor will agree to more workable terms, specially if you have some difficulty in paying up.

It is also important not to overextend your credit, specially if you no longer have the capacity to pay. It can be tempting to use more than a few credit cards, but getting more credit can be damaging to your financial condition.

Checking your credit report regularly will also help you make improvements on your credit score. If any incorrect or outdated information is included in your statement, make sure that you write a letter of dispute, so any erroneous information will be rectified.

Finally, you need to remember that building credit history takes a considerable amount of time. You can’t expect to build an impressive credit history overnight. As long as you pay your bills on time and you don’t exceed your limit, getting a much improved credit score is always achievable.

How to get a copy of your credit score and credit report

Getting a copy of your credit report is essential if you are planning to increase your credit rating. By studying your credit report, you will know which areas are not helping you in getting a much improved score.

You can get a copy of your credit report from credit bureaus. It is also possible nowadays to get a copy of your credit report from the web, for free. All you need to do is to make a request for your free credit report online. If you are a resident of the United States, you can make this free request from each of the three credit bureaus once every 12 months. You may also make a request directly from the credit reporting companies, which are Equifax, Experian, and TransUnion.

Lenders use your credit score as a basis for your credit worthiness. Your credit rating is checked each time you apply for a new loan, a new credit card, or even when applying for a job. By following these practical tips, will be able to improve your credit rating successfully or maintain an already outstanding credit score.