Why Good Credit Management is Important
Credit isn't something people should run away from. Credit can help advance your financial life. All you need to do is manage it well. Managing your credit well means results in you having a higher credit score. A high credit score means you can access more financial opportunities like credit cards, car loans, home loans, business loans, etc.
Lenders are hesitant to lend money to people with bad credit history. They know this by checking your credit reports from the credit bureaus. A lousy credit history indicates that you are irresponsible with your money.
Good credit management gives you access to more credit.
One of the most significant advantages of having excellent credit is the ease of qualifying for more. If you pay your credit installments on time and in full, lenders won't be hesitant the next time you ask. This is because you are not seen as a high-risk borrower. Receiving more is a seamless process when you have a good track record of proper credit management. However, remember that lenders also look at your income and expenses. You may be good at managing your credit, but if you do not have enough income to accommodate more of it, then you may be rejected.
Good credit management leads to better terms.
Lenders will be more likely to offer favorable credit terms to people who have proven their creditworthiness. What is inclusive in credit terms? Well, the interest rate, for starters. A high-interest rate means you will pay more on top of the minimum repayment amount. But if you are considered creditworthy, you can negotiate for lower interest rates, saving you money. Credit terms may also include the timeframe in which you need to make repayments. You can negotiate for a longer or shorter period depending on what's favorable for you.
So, how how can you practically manage your credit:
• Pay your installments on time - try to pay the day before the due date in case it takes a while to reflect in the lender's account.
• Pay your installments in full - pay a little extra when you can. This will reduce the overall amount you need to pay as rising interest rates increase your balance.
• Do not let the amount of credit you spend exceed more than 20% of the total credit you have access to. A lower credit utilization ratio shows that you are not desperate for money you do not have.
• Do not take up more credit than you can afford to pay back.
• Once you have paid off your credit, always check with your credit bureau if it is reflected in your credit report.
• If you have multiple credit facilities to pay back, knock off the one with the highest interest rate or highest balance first, using either snowball or avalanche methods.
Credit scores may differ between the three major credit bureaus (Equifax, Experian, and TransUnion) as not all creditors and lenders report to all three. It is then essential for you to check your credit report frequently. You are allowed one free credit check per year. Remember that too many credit checks will reflect negatively on your score. Be mindful that these lenders will check your credit report when you apply for store accounts, credit cards, car loans, or personal loans. So, do not approach too many of them at the same time.
Apply the ways mentioned above to manage your credit, and you will find that credit is a blessing and gives you that extra boost in your financial life.