Ideally, you would never want to be turned down for opening a new bank account. This would only mean that your credit score is perfect. Did you know it doesn’t take much to damage your credit score permanently? This will only make you an undesirable candidate for loans and credits in the future.
It is good to have the knowledge of building and maintaining your credit score to remain creditworthy. So here are a few golden rules you should memorise by heart.
1. Never Miss a Payment:
This is the primary credit card rule. Never miss a payment because if you do, the company will charge you interest on the entire debt amount as soon as the last day of payments ends. This will also make you a defaulter, and your credit will not look good to the lenders. Setting up a direct debit is an option that will ensure you will not miss any payment. You should make sure that your account has enough money, or the transaction will get declined. Do not wait till the last day but pay the bill at least five days in advance to keep a buffer.
2. Use Your Card:
This is something really common. People get credit cards to improve scores and then do not use them that intensely. Well, this way, it may seem like you will never be a defaulter, but you will also not increase your credit score as you have not taken credit from the bank. To improve your credit score, you need to use your card as much as possible and pay off the amount timely. This will showcase your payment punctuality and improve credit.
3. Cancel Cards You Don’t Use:
Owning too many credit cards with you only means you must be just using some and keeping others idle. Well, any credit card that is not being used cannot help maintain a good credit score. When providing you with a loan or a credit card, lenders evaluate the existing card combined. It is a good practice to eliminate cards you do not use, which will reduce your overdraft limit. You can also lower the limit on each card to do the same.
4. Minimise Your Credit Card Applications:
When you apply for a new credit card, the card provider first will check your credit record to verify if it is wise to let you borrow. This credit check gets recorded on your file as well. This means if you apply for too many cards, all the credit check records will be added to the file. Too many applications indicate you are a terrible borrower. Companies do not want to lend you money, or too many lenders have approved you, which means your credit limit is already high. You may be unable to pay back debt timely. Stay away from attaining too many credit cards.
5. Be Cautious When Applying:
If you have been rejected for any loan, but you seriously are in urgent need, the usual reaction would be to send several other loan applications hoping that at least one of the companies will lend you the loan money. Well, this also means you are setting yourself up to accept loads of rejection notices which will flag your credit report, and it may seem to lenders that you are a fraudster. Instead, figure out why you have been rejected for the first loan and find a company that may overlook that particular point and offer you the loan money.
6. Update Address:
You should always keep the address and name on your credit report up to date. If your account is registered at a different address and you live at a different pace, it may look suspicious to the lenders as they verify if you are creditworthy.
7. Know All Credit Card Terms:
Read all the credit card terms and memorise them if needed. You should be clear on the fees charged, interest rate, reward points, etc. If they offered the card along with an introductory offer, know when the offer ends so that you do not accidentally carry on any debt and end up paying interest and spoiling your credit. Knowing how to pick the best credit card is one way to make sure all terms are in line with your requirement. Set a reminder for debt payment on Alexa or your calendar so that you never miss a payment.
8. Verify Your Credit Score:
It hardly happens, but there are chances of error at times, like debts listed as outstanding, whereas you have paid it off timely. Just assuming you are maintaining a good credit score is not enough. You should once in a while check your credit to verify if there are errors. If you find a mistake, you can call the company responsible for it to fix it. Also, the company may write to you at your registered address which you may miss if you do not update it.
9. Giving Up is Not the Answer:
If you struggle to repay your debt for a long time and cannot find a way to pay off the money, the easiest way out is to declare yourself bankrupt. Well, that is not the right thing to do. It may get you out of paying the bills immediately but will definitely leave a significant black mark on your credit score, which will carry on for a long time. Furthermore, no financial institution will be interested in letting you lend money for a long duration which you will not want.
The Bottom Line:
Most young people in their 20s care little about maintaining a good credit score, and by the time they reach their 30s, their credit score may not be impeccable. It is ok if that is the case with you. Remembering the nine golden rules help in rebuilding your credit score.