Are you wondering how to increase your credit score? Then you need to know what factors banks and financial institutions consider when they calculate your credit score to understand what you need to do to extend your credit.
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Here are some of the factors that are part of calculating your credit score:
Opening a new credit account can lower your credit score on your previous lenders. This is because it indicates that you’re under financial stress. Having multiple credit accounts sends off the signal that you’re having difficulty paying off your current loans.
However, this may change if lenders see that you don’t have any late payments or maxed-out credit accounts. They’ll know that you’re responsible and can be a great borrower. But, if you have the chance, just stick with established lenders that can give you low-interest rates and fast transactions. Don’t open accounts if they’re not worth lowering your credit scores for.
Banks and other financial institutions check your payment history to look at your paying habit and patterns. The basic question they’ll be asking is, “If I increase this person’s credit, will they pay back on time?”
They usually check all your payment history, including your other credit cards, store account and purchases, installment loans, car and housing loans, student loans, and other equity loans and mortgage loans. They do this to know how responsible you are as an account owner. Being a responsible borrower means you pay your payment dues on time, and you don’t have any records of bankruptcies. If you’re responsible for your payments, you can expect the bank or financial institution to extend your credit.
If you spend beyond your credit limit, creditors will see potential risks in extending your credit. To maintain a good record with your credit history, lenders have good eyes on those who spend only 30% of their credit limit. So, be cautious about how you use your credit cards.
People have a misconception that the more you use up your credit limit, the better your potential for having high credit scores. Don’t be deceived by this myth and spend a lot. You might end up having no money to pay off the debt and have low credit scores instead.
Lenders also want to see that you manage your credit well by diversifying your credits. You can use a mix of credit cards and some installment credit that includes mortgages and housing loans. Both cards and installment loans must be well represented by paying on time and avoiding any maxed-out accounts.
Credit scores help financial institutions determine how responsible you are as a borrower. To maintain your good record, you need to pay your dues on time and keep spending in line with your means. Ultimately, you need to use your credit score to your advantage not to hurt your future financial opportunities.