Ways to Maintain Healthy Credit Score

Credit score is the measure of creditworthiness of any person. Banks and financial institutions follow the credit score of the borrower before lending a loan. Credit score helps them understand the potential risk of default by the borrower, and to cut bad debt.

The benefit one enjoys by maintaining a good credit score is that banks and financial institutions will charge lower interest rates for any person with credit cards and loans. Therefore, it is advisable to maintain a good credit score to afford financial requirements at less cost.

There are several ways to maintain a good credit score. Some of them are:

Save your funds
Savings is an important source of survival in case of any calamity like job loss, salary cut, etc. How much do you save? A rule of thumb, is to keep nearly 15 per cent of your income as savings. The surplus will help you survive for a few months without the need to borrow.

Track your spending
One should keep a track on all the transactions made. The transaction might include credit card transactions, ATM card transaction, all the spending and purchases. Cross check the amount, that is mentioned in your monthly statements to avoid any discrepancy.

Keep a check on credit limit
Don’t spend more than the credit limit offered. The credit card debt should never exceed twenty per cent of annual income considered after taxes. Also, reduce the monthly credit card payment to less than ten per cent of your take home pay. This way, you are aware of your spending and might plan your finances in a better way.

Pay the minimum amount
Interest and other charges account for most of the additional pay one ends up paying. One should make sure to pay the minimum amount requested by the bank or any other financial institution to avoid unnecessary interest charges or late payment fees.

Focus on timely payment
Make it a habit to keep all the bills you need to pay at a same place. This way you will not miss on any payments. All the bills are paid either on or before the due date to avoid extra charges. Consider the best means of payment for easy transactions like online payment and payment through checks to delay the payment.

Don’t make too many loan requests
To avoid damaging your credit history, don’t make too many loan requests over short periods, as this may negatively impact on your credit score.

Be disciplined
Be disciplined in your spending; be organized in paying off your balances on time, tracking your spending, etc. This will build your trust with creditors and it will also improve your credit score. Remember, many banks check if you are disciplined in your personal financial planning before they approve any loan. They are clear; they don’t want to risk their money.

So, satisfy all your financial needs with a healthy credit score!