Building a Good Credit Score

The formula used in determining your credit score considers values from different characteristics and factors. These can be the total value of your outstanding loans, and the transactions of your credit cards in the past. With its complexity, it is not easy how a high credit score is earned or how a bad one is improved.

It will be easier to proceed following one core principle at a time in establishing your sound financial reputation than trying hard to improve a credit score which is written with negative figures.

How Your Credit Score is Affected?

Two factors that can have a huge impact on your credit score are outstanding debt and history of payment. If you missed a payment schedule or breached a financial contract, either can negatively affect your credit score. The same can be said if you have big amount of money for your loans, delinquent credit card due, and mortgages that are on the verge of being foreclosed.

Other factors discrepancies in different credit types, credit history, recent loan applications, and the volume of inquiries made about your credit by lenders or consumers.

How to Build a Good Credit Score?

Building a credit score that gives a lot of benefits is more about using a common sense. One efficient approach is to follow your paying schedule strictly. This can be done by paying immediately the outstanding balance as it falls due, and pay your dues even before their due dates and thus avoid the red letters.

Another approach that is often left unnoticed by most is to make it a habit that at all times, your debt is one quarter (or within such limit) of the overall credit allowance you have at the present. An illustration of this is if your available credit is $50,000.00 from loans and credit cards, the amount you owe should not go beyond $12,500.00. If you made payments so that your credit goes to $30,000.00, then insure the amount you owe is not more than $7,500.00.

Your credit score is also affected by the history of your employment. As much as possible, avoid employment gaps because if lenders will see that you do not have a stable employment course, then you are likely to be of higher risk because you will not be able to make payments on time. Too, keep at a low range the volume of your inquiries about a credit because such can be indicated as hard struggle in your bank balance.

How to Avoid Getting a Bad Credit Score?

Follow the formula used in establishing a good credit score. Avoid doing the opposite of what is primarily required in earning and keeping a good credit score. To repeat, pay your debt as it falls due, or if you can, make payment before it is due.

Avoid being out-of-job, making several inquiries, and using three quarters or more of the credit available to you.

Finally, if you have tax liens, declarations of bankruptcy, and foreclosure proceedings against your property, all of these can have a negative impact.