A good personal credit score is essential if you want to qualify for the best mortgage rates, get a great credit card bonus, or even land your dream job. Because credit influences so many major life decisions, it’s critical to start building credit early and consistently.
Opening a credit card, paying eligible bills on time with Experian BoostTM, and receiving credit for monthly rent payments are all ways to build credit.
Knowing why personal credit score is so important can help motivate you to work on improving your credit score. We’ll go over some of the major advantages of building credit, as well as how you can improve your credit score.
Why is establishing credit crucial?
You might not be thinking about building personal credit score, but you should. Every time you apply for a new financial product, such as a loan or credit card, the lender runs a credit history check. Only applicants who satisfy specific credit requirements, such as having a good or excellent credit score, may be accepted.
If you don’t have good credit, you might miss out on getting a credit card, mortgage, or personal loan with a low interest rate and end up paying more over the course of the loan. However, if you build up a good credit score, you can reduce your interest costs and use the money you save to make investments in the future.
Additionally, credit affects more than just your ability to be approved for new financial products. Before making a job offer, some employers may even check your credit report for any potential red flags, such as past-due accounts or accounts that are in collections. Whether they decide to hire you or not could depend on the outcome of their credit inquiry.
In order to present your finances to a lender or potential employer in the best light, it is crucial to build credit. Your ability to qualify for the best financial products that can help you save money and accomplish your goals is increased when you have good credit.
Advantages of establishing credit
Many financial and life decisions benefit from having a high credit score. Here are a few of the main advantages of establishing credit.
Improved approval rates
You’re more likely to be granted personal credit, such as a credit card or loan, if you have a high credit score. A person with a credit score of 760 will be viewed more favorably by lenders than someone with a score of 550. Having said that, a variety of factors, such as your income and employment situation, are taken into account during the application process.
Decreased interest rates
You’ll be eligible for lower interest rates the higher your credit score. Low interest rates on credit card balances, mortgages, and personal loans can save you hundreds or even thousands of dollars.
You can generally qualify for the best terms on any type of credit product with good credit. You might get a credit card with a higher credit limit or a mortgage with a bigger loan amount. Longer loan terms, such as a 30-year repayment period as opposed to 20 years, may even be advantageous to you.
You typically need a good or excellent credit score if you want to take advantage of substantial credit card benefits. The best credit cards provide high rewards rates, lounge access, annual credits for dining and travel, and much more. There are rewards credit cards available for those with bad, fair, or average credit, but you frequently won’t get these valuable perks.
How to increase credit
Numerous methods can be used to establish credit. Without realizing it, you may already be making decisions that lower your credit score. Your credit can be improved by taking steps like paying your utility bill on time and maintaining a low credit card balance. Similar to how late payments or large balances can damage your credit.
Follow these wise credit habits to improve or restore your credit.
Apply for a credit card
When used responsibly, a personal credit card can be an easy way to build credit score. You’ll gain from having the choice to buy now and pay later while building your credit. Consumers with little to no credit history can apply for credit cards.
Think about the top credit cards for credit-building from CNBC Select:
- Petal® 2 “Cash Back, No Fees” is the winner. Credit Card for Visa.
- Runner-up: Secured Discover it® Credit Card.
- Capital One Platinum Secured Credit Card is the best low deposit option.
- Best for applicants from abroad: Deserve First Digital CardTM.
- optimal for students Explore it® Cash Back for Students.
- Optimal for average credit: Credit Card Platinum from Capital One.
- Become a credit card’s authorized user.
Become an authorized user on someone else’s account instead of opening your own credit card if you don’t want to take the risk. A relatively low-risk method of establishing credit is through an authorized user because you can benefit from someone else’s good credit (just make sure the account owner has good credit).
Make prompt payments.
It’s critical to always make on-time payments to your creditors because payment history makes up the majority of your credit score. You can schedule payments using the excellent autopay tool in advance, ensuring that you never forget a payment’s due date.
Utilize Experian Boost to receive credit for certain bills.
You can earn credit through the free Experian BoostTM feature by paying your eligible monthly bills on time. Simply link your telecom, streaming, and utility accounts to Experian Boost to receive credit for timely, accurate payments. You’ll immediately receive new credit scores after signing up and connecting your bills, some of which may reflect an improvement. Based on Experian data, users typically see a 12-point improvement in their FICO® Score 8 over time.
Receiving credit for rent payments
Rent payments typically do not appear on your credit report, although you can double-check with your landlord. Mortgage payments do. Use a service that reports your payment history to the credit bureaus, such as Rental Kharma or Rent Reporters, if you are a renter with a history of on-time payments.
These services typically charge a registration fee in addition to a monthly fee and demand confirmation from your landlord. While Rent Reporters charges a one-time $94.95, then a $9.95 monthly fee, Rental Kharma has a one-time $50 account setup fee and $8.95 monthly fee.
1. What can I do to raise my personal credit score?
Payment of EMIs on time results in a clean credit history.
- Make complete credit card payments rather than the minimum payment. If all else fails, make the bare minimum payment.
- When compared to a loan, credit card debt is known as revolving credit, which helps establish a positive credit score faster (if payments are paid on a regular basis).
- If you have used your credit limit sparingly, it will help your credit score.
- Prompt repayments help your credit score.
- Regularly reviewing your credit history allows you to assess your financial health.
2. Do late payments and high credit limit utilization have a negative impact on your credit score?
Your credit score will suffer if you have missed payments on any of your debts throughout the years. A higher consumption pattern means more repayments, which lowers your credit score.
3. What factors influence a high or low credit score?
A high CIBIL credit score indicates a lower likelihood of default. A low CIBIL credit score indicates a significant risk of default.
4. How do you obtain your CIBIL score?
To obtain a customised credit score, go to the CIBIL website and click on the ‘know your score’ option. Fill out an online form with your name, date of birth, income, identity verification, address, and phone number, as well as the loans you have taken out.
Following the payment of a particular amount, you will be required to submit authentication credentials, which will include inquiries about your credit history. Your credit score will be provided to you after validation.
5. Will getting a credit card lower my score?
If your previous credit card has no outstanding balance, there is no reason to be concerned about it and close it. If you have a credit card with a clean payment history, it will not only demonstrate your responsible credit behavior but will also keep your utilization rate low, which will benefit your score.
It doesn’t have to take up a lot of your time to build credit. You can incorporate practices that will help you in the short and long term into your routine, such as setting up autopay or connecting eligible bills to Experian Boost. You’ll start to benefit as soon as you begin to build credit.
At ForeignAdmits, we understand how important this decision is. We’ll be there for you every step of the way. Finding the right school for admission and scholarship consideration is critical.
ForeignAdmits has a team of experienced counselors. We can provide you with customized advice based on your specific needs. Get in touch with us right away for a great start. We are excited to help you achieve your educational and professional goals!