Healthy Credit Score: What Is the Secret

Since the inception of life, when the early cavemen borrowed firewood from each other, the lender has had to consider whether his loans would be paid back. So in the late 1950s, a man had to evolve and create a means of checking whether a debtor would be able to pay his debt back hence, Credit Score was developed.

In this 21st century, our financial life is as good as our credit score. Since most of our economic life depends on our ability to access cash mainly when urgently needed, one can easily access a new line of credit by searching for loans in Nova Scotia.

So since our life depends on our credit score, one needs to ask, How do you get a healthy credit score?

What Is a Credit Score?

A credit score is a number that shows your credit well-being. It is a figure which varies from 300 to 850. A credit score is gotten after a careful examination of one’s credit report which is made by credit bureaus.

Most lenders such as credit card institute, banks, and other lending establishments use credit scores to estimate the possibility that someone would be capable to pay back debts in time and to reduce losses in bad debt. 

The lender also checks a credit score to decide who qualified for a loan, what interest rate to apply, and what credit limits he can apply to the borrower.

The most used credit scoring pattern was designed by FICO, it is used by most financial establishments, another scale is Experian’s National Equivalency Score, but the FICO is most commonly used.

Factors Affecting Credit Score: How Is Your Credit Score Calculated

A credit score is a numerical survey of your ability to access credit. 5 crucial factors affect your credit score. 

These factors are:

1. Repayment History
2. Whole Amount Owed
3. Credit Type
4. Credit History
5. New Credit

Source: springfinancial.ca

Payment History accounts for 35% of one’s credit score, this shows if the borrower pays back his or her loans within the repayment window.

The Whole Owed Amount accounts for 30% of your credit score, this considers the rate of credit at one’s disposal that is presently in use, this may also be called credit utilization.

Credit Type used accounts for 10% of one’s credit score, this shows if an individual has a mix of credit namely mortgages, auto loans, and credit cards.

Credit History amounts to 15% of one’s credit score, Lengthy credit history is regarded to be less risky because there is enough information to settle payment history.

New Credit amounts to 10% of one’s credit score.

Healthy Credit Score: How Does It Look Like?

A Credit Score can hardly affect your life and situation with finances. It has a very critical role in an individual ability to access credit. 

According to the FICO scale, people with a credit score below 640, are viewed to be SUBPRIME BORROWERS. 

Lenders are inclined to impose higher interest rates on such types of borrowers, this is high-interest rate is to make up for taking more risk. Also, a credit score of 700 or more on the FICO rate is regarded to be healthy and people with this credit score are likely to receive lower interest rates.

A recent survey shows that more than half of Canadians possess a credit score of about 750.

Source: simplerate.ca

People with a credit score of 800 and above are considered to be very creditworthy. Every creditor states its own scale for credit rates, but the standard score range provided by FICO is: 

• Excellent: 800 – 850
• Very Good: 740 – 799
• Good: 670 – 739
• Fair: 580 – 669
• Poor: 300 – 579

So, a person with a Credit Score of about 700 and above basically has a HEALTHY CREDIT SCORE.

How To Gain a Healthy Credit Score

#1 Monitor Credit Reports Regularly

Monitoring your credit reports regularly is very necessary for gaining a healthy credit score. One should monitor his or her credit report for errors. 

The research found out that 1 in 5 people had mistakes in their credit reports.

Correcting these mistakes can grossly improve one’s credit score. Monitoring of one’s credit report helps one spot these mistakes which can then be disputed and corrected.

#2 Request a Higher Credit Limit From Your Credit Card Issuer

One of the most essential factors on the FICO scale is the Credit Utilization Ratio or the amount of credit you have used when weighed up against your total credit limit. 

The optimal credit utilization rate you should have is 30% but the ideal rate is 10% and below.

The best way to minimize your credit utilization rate is by applying for an increase in your credit limit on your credit card, provided you do not increase your spending your credit utilization rate would be reduced.

#3 Request For Lower Interest Rate

For credit card users, paying off your balance can take months which can run into years. One can reduce their amount to pay off this loan by negotiating for a lower interest rate.

If you use multiple credit cards, you should check for the one with the highest interest rate and call the card issuer asking for a lower interest rate as a reward for being a commendable cardholder.

#4 Build Credit With Secured Credit Card

Secured credit is one of the ways to grow a healthy credit score because secured credit cards are made for persons with bad credit scores, they are easy to obtain.

When trying to obtain a secured credit card, you have to put down a deposit that equals the credit limit, but some secured card providers allow deposits lesser than the credit limit.

How To Keep Healthy Credit Score

1. Pay bills on time.
2. Consolidate Credit card debt into personal loans.
3. Use credit monitoring to track your progress.
4. Don’t request multiple credit cards at once.

Conclusion

In the 21st century, one’s financial life is as good as one’s credit score. A healthy credit score does not just influence your ability to get credit but also the ability to get a good job as most employers now look at their prospective employee credit score.