Recession, credit crunch debt crises, subprime lending and the list go on with words that frequently made headlines during the last 4 years. Well, what it all boils down to is that lending money to an unsuitable candidate is bad for everyone, for the lending institution, the borrower and the economy in general. There may be those who miss the good times in 2005-2007 when money was abundant and banks were lending to anyone. The reality, however, is that this was never sustainable and should never have happened, and the strict lending criteria that we have today are a good thing. Getting and maintaining a clean credit score is not very difficult, and there are even some sneaky tricks you can use to get a great credit score.
How is the Credit Score Calculated?
There are five areas that determine your credit score. These are:
- Mix of credit
- Payment history
- Debt levels
- Age of credit
- Recent credit
Now, many people out there look at these five factors and feel comfortable that they are managing well on each of them, and therefore take it for granted that they have a good credit history. Never take your credit history for granted as mistakes are made all the time, and you may not be maximizing your credit score and therefore checking will help you track this.
Tips to Get the Most Out of Your Current Credit
Start by looking at your current credit and see if you are using it in a way that favorably affects your credit score. Often simple changes to your current debt can make significant difference.
1. Keep Outstanding Balances Low
Although you must have debt to have a good credit score, high debt balances do negatively affect your score. Therefore determine if you can pay more on accounts that are at or near their maximum. A sneaky way to make your credit look less maxed out is to ask for a limit increase so it looks like you have less debt than the maximum allowable. Warning, one can easily see the dangers of an increased credit limit, and therefore this is only for people who are very self disciplined and will not use the extra credit.
2. Do Not Close Settled Credit Cards
The longer you have credit the better for your credit score so, if there is an account or credit card that you have paid off do not close it, rather keep it dormant and it will look great on your credit score. If you are planning on paying off a credit card or other debt, look at debt that has no admin fees so you can get the benefit of a aged debt without paying anything for it.
3. Pay As Much As You Can As Often As You Can
A misconception that is rather common is thinking that paying the minimum balance due every month is good for your credit score. In fact, the opposite is true, even if you are not in arrears the credit score shows you owe money as debt is calculated daily, and therefore paying a little more than should is always better.
Apply for New Debt and Increase Your Credit Score
If you need to apply for new debt, there are ways in which you can do it that will not harm you credit score, and quite frankly will often improve it. This is done through:
- New Applications
Make as few new applications as you can by deciding beforehand what you want, and also ascertain if you are eligible without having to officially apply first. If you must apply for a few different lines of credit, do them all as close together as possible as the credit score classifies all applications in the same month as one application.
- Diversify your Credit
Where possible, do not get the same debt type as you currently have. For example, if you have a credit card, do not consider another one to help you buy a car for instance. Rather purchase your car on a hire purchase car finance agreement, or get a clothing account or store account instead of a new credit card to restock your wardrobe. A large part of your credit score is determined by the variety of debt types you have.
About the Author: This article was written by Timothy Ng. You can read more of his work at CreditCardFinder.com.au where he has a number of comprehensive guides to all types of credit cards.