Were you surprised when the bank said that you’d have an 11% interest rate on your mortgage? This only means that you do not have a good credit score. Banks base the interest rates of your loans on your credit score. If you have a bad credit rating, you’ll have a hard time qualifying for low interest.
You need to fix and take care of your credit score. That way, you won’t be scared every time a bank asks for a 4506-T verification to see your past income tax returns. You need these when applying for automobile and house loans, credit cards, and business mortgage.
Pay off Your Credit Cards and Loans on Time
Don’t be negligent of other credit cards because they have a lower balance and interest rate. Focusing on the card with the higher credit and interest rate is not a smart move. This will only show the lenders that you are not responsible for paying your loans and credit. Pay all your cards before the due date. If possible, pay more than the minimum required amount.
Keep Your Old Credit Cards
The credit score is also based on the length of your credit history. Keep your old credit cards with you even if you don’t plan on using them anymore. This will show the lenders that you can maintain your credit cards for a long time. It means that they can trust you with a loan.
Consolidate Your Balances
You might have multiple credit cards with small balances. That does not show that you don’t use up all your credit limits. Having multiple cards with small balances can work against your credit score. What you can do is to consolidate all your debt in one card. Ask your best credit card if they can offer a balance transfer. This way, you’re only indebted to one credit card company.
Aim for 30-percent Credit Utilization Ratio
If you use up $500 out of the $1,000 credit limit of your card, you have a 50% credit utilization ratio. The aim is to go lower to 30% or below. If you can go lower, all the better. People with good credit scores have an 8% utilization rate.
Dispute Erroneous Entries in Your Credit Report
Credit agencies may be charging you for transactions that you have not authorized. Make sure to check all entries in your credit report. If there are questionable and erroneous entries, report them immediately and have them removed. You can dispute entries in your credit report, so take advantage of that.
Avoid Applying for New Loans
Avoid applying for new credit cards and loans as much as possible. As a general rule, if you can’t afford an item, don’t buy it for now. New loan applications account for 10% of your credit score. Lenders will take a hard look into your credit history and score when you apply for loans and credit cards.
Living within your means is one of the surest ways to keep your credit score in good standing. You will not accumulate debt if you spend only what you earn. Follow the 20/10 rule. Your credit card debt should not be more than 20% of your yearly income after taxes. You should also keep your monthly credit card payments below 10% of your monthly income.