How to boost your credit score for lower interest rates
Having a strong credit score can help you qualify for the most competitive interest rates when you’re shopping for a mortgage, a car loan, a credit card or another type of private or personal loan. That can lead to big savings since you’ll pay less in interest charges over the life of the loan. The more money you can keep in your pocket, the more you’ll have available to put toward your future financial goals.
Here’s what you need to know about keeping a healthy credit score and how it can put you in a position to enjoy more competitive interest rates when you need to borrow money.
How to determine the health of your credit score
Your credit score is a three-digit number based on information in your credit report. Your credit report is a detailed overview of your credit history and includes information such as credit and loan accounts you have and how long you’ve had them. Credit bureaus (like Experian, Equifax and Transunion) use this information to formulate your three-digit score.
When you borrow money, whether it’s applying for a credit card, a mortgage or a home equity loan, prospective lenders use your credit score to determine how safe or risky it is to loan you money. Higher credit scores are “healthier” since they represent less risk, which can help you qualify for lower interest rates.
5 ways to boost your credit score
Building a strong credit history, and credit score, starts with practicing good financial habits like the ones below.
Pay your bills on time. This includes everything from your mortgage or rent, to your credit card bills, to your monthly cable bill. Avoid missed or late payments by setting up autopay for recurring monthly bills. The amount due will be automatically deducted from your checking account on the same day each month.
Keep a healthy ratio of credit balance to total available credit. Try to avoid using all of your available credit or keeping several balances on multiple accounts. Try not to let balances exceed 30% of your credit limit. If you can, try to pay balances in full each month to avoid interest charges.
Keep credit cards open, even if you don’t use them. A long and stable credit history is one way to boost your credit score. For that reason, avoid closing cards that you don’t use. Plus, keeping them open helps increase the amount of your total available credit.
Avoid opening several new accounts in a short amount of time. Make it a habit to open new accounts only as needed. It’s also a good idea to avoid opening new accounts before you make a major purchase. For example, if you’re currently shopping for a mortgage, resist the urge to open a new credit card account to pay for home furnishings until after you’ve secured the financing for your new home.
Check your credit report regularly. Financial experts recommend checking your credit report at least once a year. It’s also a good idea to check your report before making a big financial move, like applying for a mortgage. This gives you time to make sure your report is accurate, correct any errors and report any unfamiliar accounts or unusual activity. You can request a free copy of your credit report annually from each of the three credit bureaus at annualcreditreport.com. Check the reporting agency’s website for guidance on how to correct information or dispute an error.
A strong credit score shows lenders show well you manage your finances over time. That’s an important step toward accessing the most favorable borrowing terms in the future. For more information about building and maintaining good credit, contact your local Commerce Bank branch.