That’s because your score comes with a broader report itemizing the way you’ve used a personal loan or line of credit in the past. And these details reveal a lot about you.
Your score is a sensitive number that fluctuates every time you check it. This is partly due because there may be no difference between hard and soft credit checks depending on where you get this report. Both kinds of inquiries may show in your report and affect your credit history.
But there are many reasons why your score moves up and down on the scale. Here are some good money management tips that may help you prevent it from dropping down again.
1. Pay Bills on Time
According to cashmagneet.nl, "This good money management habit sets a precedence. If your report shows a reliable history of paying bills on time, your financial institution can reasonably assume you’ll continue to do so when you borrow in the future."
2. Lean on Tech for Help
Paying bills on time isn’t always easy when you’re running a household. An important due date may slip your mind when you’re focusing on making sure the kids get enough to eat, earn good grades, and get to dance practice on time.
Try programming it in your phone’s calendar or downloading a money management app to help remember upcoming dates.
3. Tap in Only for Emergencies
Generally, a personal loan or line of credit should only be used in emergencies. It gives you peace of mind when your child hurts themselves and you don’t have the savings to take them to the clinic.
But it shouldn’t be a replacement for cash when paying for everyday items. Most loans accrue interest, which will add bills to your plate.
4. Don’t Max out Revolving Accounts
Just because you receive a limit doesn’t mean you should meet it every billing statement. This creates a high utilization ratio which may have an impact on your history. It shows financial institutions you’re regularly maxing out an LoC — which doesn’t reflect well on your ability to budget.
5. Pay More Than the Minimum Payment
Another way to control your utilization ratio is by ignoring the minimum payment. This option should be a last resort when money’s so tight you can’t pay everything on time. Otherwise, pay as much as you can against your balance. Reducing how much your carry over month-to-month may lower how much you pay in interest.
The way you pay for things reveals a lot about you as a borrower. It tells financial institutions how you handle debt and manage your money. If your performance impresses them, you might be able to snag a personal line of credit with fewer hassles in an emergency.
Why does this matter?
Unexpected bills following a show-stopper holiday season make for a rocky start to the new year. If you don’t have the cash you need, a personal loan or line of credit may be the only way you can pay them in time.
