A good credit score is the difference between low interest rates and astronomical interest rates. When you apply for a new credit card, the credit card provider looks at your past history of borrowing and paying back, along with a variety of factors. One of the most important factors is how often you borrowed and your payments.
When you open a line of credit, you have access to the total amount. As you spend money, your total amount available drops. The provider offers a minimum amount due every month, which you must pay. To have a good credit score, you should pay more than the minimum amount. Every time you use the credit card, the provider charges interest on that money.
You should keep a high ratio of available credit to credit on each card. For example, if you have a $2,000 line of credit, try keeping a balance of just a few hundred dollars on that card. Avoid paying off and closing your credit accounts, as banks view this as a negative mark. When you pay off and close a credit card account, the account no longer appears on your credit report. The lender wants someone with a small amount of debt. Try keeping a small amount on each card.
Having a good credit score opens more doors. Many employers now run credit checks on potential employees because it gives the company an idea of your reliability. If you have multiple accounts and owe hundreds of thousands of dollars, the employer might decide that you show signs of irresponsibility and are not a good fit for the position.
A good credit score also helps when you need to borrow money from a bank or financial institution. When you have a poor or low score, the bank sees you as a liability and will not loan money to you. If it does loan money, it offers that money with a higher interest rate, which takes longer to pay back. Having a good credit score means that you are privy to lower interest rates and more lenient repayment terms.
Keeping a good credit score requires some effort on your part. Even a simple mistake on your part can significantly impact your score. You must pay at least the minimum amount due before the due date every month. Every time you make a late payment or skip a payment, the provider sends that information to the credit reporting agencies, which lowers your score. Going over the limit on your card results in hefty fees and a lower credit score.
You can also protect your credit score by using your credit cards wisely. Shop around for the best credit cards, such as a Virgin credit card, which has a low interest rate. If you find a card with a lower interest rate, consider transferring the balance from a higher interest card. Not only does it save you money, but it also gives you a longer line of credit for emergency situations. A lower interest credit card also helps you pay down your credit card faster.