How to keep a good credit score?

Excellent credit history and credit score are essential to qualify for a loan with more favorable terms and may lead to lower interest rates. It shows how conscientious and honest borrower you are, and it can facilitate better cooperation with financial institutions.

Every person who at least once has purchased a product on installments, borrowed a small loan from a registered lender, or made regular payments to service providers has a credit score. The credit score is formed automatically, but a person has the opportunity to improve it through his financial habits.

Tips for maintaining a good credit rating are many and varied, but experts usually single out eight main ones, which we have summarized in this article.

The golden rule. Pay on time. Making payments on time is one of the best ways to prove to financial institutions that you are a low-risk borrower and that you will be able to meet your financial obligations. The lower the risk, the better future loan terms you will get, and the less money you will have to pay for a loan.

Our experts advise clients to follow payment schedules and due dates carefully. One easy way is to set payment deadline alerts that notify you when the payment day is close. Another helpful trick is to sign-up for automatic payments. It will assure you that the specified amount of money will be transferred to your lender every month on the same day.

Have a credit history. Sometimes, a person who applies for their first loan but has no previous credit history may be considered a high-risk customer. It is because they have no track record. To have a good credit score, you must demonstrate a habit of good credit management over a more extended period.

Reduce your existing obligations before taking on new ones. Before issuing a loan, lenders always evaluate the income ratio to existing credit obligations. This is called the DTI (debt to income) ratio. The credit institution may refuse to grant a loan if your credit obligations exceed a certain percentage of your total income. Always try not to commit more than 50% of your monthly net income to your loans. If you see liabilities taking a more significant part of your net income, try to reduce them in time.

Apply for the loan you need. Just because credit is offered doesn’t mean you have to accept it. Do not apply for multiple accounts in a short period of time. Taking on large amounts of debt in a short time is a sign of high credit risk and inadequate management of finances.

Don’t take a loan to cover another. Under no circumstances should a new loan be taken to solve temporary problems of fulfilling financial obligations arising from an already taken loan. A new loan is an additional burden on your finances and can lead to even more difficulties in meeting your obligations in the medium term. If you ever have trouble making a payment, contact your lender immediately to arrange changes in your repayment schedule or find a solution for deferred payments.

Keep track of your spending. Always track your debit card and credit card transactions and ATM usage. This will help you to plan your daily expenses more successfully, build stable savings and not expose yourself to unexpected risks.

Don’t get close to your credit limit. Be smart. If you are close to exceeding your credit limit, then reconsider your spending. Keeping your credit utilization rate below 30% may help you maximize your credit score.

Make savings. Do not forget to make regular savings of at least 10-20% of your net income or try to create a safety cushion of 3-6 monthly salaries. That way, if you lose your job or have a significant, unexpected expense, you don’t have to borrow more than you’re comfortable repaying. 

Although these eight recommendations will certainly help you better plan your obligations and improve your credit rating, it does not guarantee the best loan terms at all times. Any responsible creditor also evaluates the net amount of income, income stability, age, number of dependents, household income in some cases, and other criteria that can affect the loan.

Keep in mind that building a good credit history and credit score is a marathon and a process with many variables. Planning personal finances and credit obligations must be approached thoughtfully and responsibly.

DISCLAIMER: The information contained within the financial literacy tool is provided for informational purposes only. The user should always do their own research and seek professional advice to ensure that the recommendations provided are suitable for their own situation. We do not guarantee the total accuracy, completeness, or reliability of any advice, opinion, statement, or other information displayed or distributed through this website. Therefore, any reliance on the information provided is solely at your own risk.