Credit scores are an excellent financial tool that measures your financial health. It determines more than just loans or interest rates and provides several benefits. These benefits range from better cell phone plans, homeowner coverage, and premiums for utilities. 

Bad credit scores can lead to expensive payments exceeding six figures, while a good credit score can get you the best terms and rates from lenders.

This article will discuss the importance of credit scores and how you can take advantage of them.

What is a Credit Score, and Why is it Important?

A credit score is a scoring system that represents how likely you are to be a good risk for bank loans, credit cards, and mortgages and if you can repay your dues on time. Your credit score standing influences whether or not a business can give you credit and the loan terms they can offer.

The importance of credit scores lies in a person’s three-digit score. This plays a vital role in anyone’s financial life since it reflects your creditworthiness. The score is based on your credit history. If you have a good credit history, you can be assured that your score will be good. 

However, what separates good and bad credit scores?

Good credit scores indicate that a person’s financial situation is on track. This means there are no issues with debts and other miscellaneous payments. 

Businesses see people with a good credit score as less of a financial risk. Thus, they have excellent chances of getting credit, including car loans, mortgages, credit cards, and insurance. 

Bad credit scores are people with the opposite situation. These people have multiple issues regarding their financial stability, which reflects how a person handles their financial problems. Individuals with bad credit scores will find it challenging to get credit and are more likely to pay higher interest rates for them. 

Good credit scores range from 670 to 850 points. Anywhere below 580 points is considered a bad credit score. 

Below are some tips for maintaining a good credit score. 

1. Use a credit card to gain credit

If you are a first-time credit card user, consider getting a secured card. A secured card requires a deposit but can be refundable. This refundable fee will be used as collateral. 

An advantage of applying for secured cards is that it is easier and has less strict requirements. Additionally, unsecured cards do not require collateral and are based on creditworthiness.

Remember, payment histories are normally reported to three consumer credit bureaus. People should make their payments on time and in full to establish that they are reliable people when it comes to their finances.

2. Earning rewards

Following up on credit cards, earning rewards from them is an excellent way for people to use them for numerous purposes. People can use the rewards for travel, accommodation, and cashback. The benefits people will receive will depend on the kind of card they have.

Despite the numerous rewards, it is easy for many to overspend with their credit card. Some people who use their credit cards to pay for any type of expense have a higher tendency to spend more. The recommendation here is only to use a credit card for big-ticket purchases or any expense you can pay in cash. This allows people to pay off their statements easily.

3. Have a strategy

Having a strategy when using a credit card and its rewards is crucial for maintaining a good credit score. Things like making payments on time and only buying necessities can make paying bank statements easier. 

Following a financial strategy can help you stay below the credit limit. Staying below the limit makes it easier to pay on time and in full. The idea here is to try not to exceed 30% of your credit limit to be on the safe side. It is a simple yet efficient way to manage a credit card.

4. Avoid closing accounts

Some people have accumulated a high enough score in their account. If the score is over 760 (indicates you’re a good risk), it is possible to shutter an account without significant damage, but the priority is to maintain that high score. Closing the account can be detrimental since it could be difficult to regain those points.

5. Determine credit history

The history of a credit account is an essential part of determining how reliable a person is when handling long-term accounts. This relates to the previous point of closing accounts. The longer your account’s history is, lenders will be more likely to trust you. This involves appropriately paying on time and handling any financial issues.

6. Keep old credit accounts

Keeping old accounts is another way to exhibit proof that someone is reliable. Alongside credit history, someone who has multiple accounts and has maintained them shows lenders these are people they can trust. They are proof that a person is a reliable, long-term account holder. 

Stay Smart and Maintain Good Habits

Keeping a good credit score is one of many financial goals anyone can have. Keeping that credit score produces many advantages, from loans to leisure benefits. 

Remember, people need to be intelligent and strategic. Staying below the credit limit and having a specific budget helps maintain a high credit score. Add the history of the account, and lenders will feel more comfortable. These are simple things anyone can do that can lead to good habits resulting in a high credit score.