Creditworthiness

How well do you effectively manage your credit and work to ensure payments are timely made? Your financial behavior, or how you handle money and deal with financial matters, is indicative of your creditworthiness. Being financially solid can help you qualify for lower interest rates on loans and credit cards, higher credit limits, and lower rates on car and home insurance. Moreover, creditworthiness is considered not only by lenders and insurance companies, but also by employers, landlords, and utility service providers. Regardless of your current financial situation, you can improve your creditworthiness. Below are three steps to get you on the right track financially.

Pay Your Bills on Time

Late payments generally result in consequences; these include not only late fees and higher interest rates, but also disruptions to service, vehicle repossession, eviction, and foreclosure. If you find yourself consistently paying bills late, it is important to determine the root cause. Are multiple bills coming due at the same time? Are bill dates landing before paychecks are deposited? Are payrolls irregular, or are you overspending? Falling behind or missing bill payments can affect your credit score and cause financial stress.

There are several ways to get on the right track and pay your bills on time. Ask your creditors to change your bill due dates to match your payroll deposits. Practice paying your bills online to help with timeliness. Set up auto pay to enable automatic transfers from your checking account to pay your bills. Because paying bills on time is an important factor in calculating your credit score, consistent on-time payments can lead to a higher credit score.

Credit Utilization Ratio Less Than 30%

The percentage of total available credit you are using is your credit utilization ratio. It’s based on the balances reported in your credit report. To calculate credit utilization, divide your total amount of debt on revolving accounts by the total credit available to you. A lower credit utilization ratio is representative of using credit responsibly, while a high ratio indicates you are close to maxing out the credit you have available. In general, a 30% or lower credit utilization ratio is a good goal to maintain. To improve your credit utilization ratio, pay off debt or pay off balances early, request a higher credit limit, or open a new credit card. By working to keep your debt balances as low as possible, you can build good credit and increase your credit score.

Length of Credit History

The longer your credit history, the more data available to assess your financial habits. Opening credit accounts and making timely payments consistently over time shows you can manage credit responsibly. What’s more, higher credit scores can result in a lower cost to borrow money. Insufficient credit history simply means there is not enough data available to evaluate creditworthiness. Being new to credit, not using credit for a prolong period of time, or not having any credit accounts can result in an insufficient credit history. As such, open new credit accounts, work to hold accounts for a long term, and remain in good standing with all of your credit accounts.

A positive financial lifestyle is available to you when you live within your means, pay your bills on time, and utilize debt wisely.