It is a pretty well-known fact that there are millions of people here in the United States who would like to improve their credit scores. A high credit score can help consumers to get more favorable loans, better insurance rates and even to land better jobs. However, there is so much advice floating around out there that is supposed to help you improve your credit rating that it is often impossible to know what to do. Today we are going to keep things very simple. We will talk about one important step that you can take to potentially improve your credit score – paying more than the minimum on your credit cards.
It is amazing that so few people know about this trick. Of course, today’s society kind of leads people to do the bare minimum in order to get by, so maybe it should not be so surprising that people don’t know that it is important to pay more than the minimum monthly payment on their credit card accounts. In fact, it is not just your credit score that can improve when you do so, but your entire financial outlook will begin to improve when you start to up your credit card payment amounts.
Your credit score is built upon a foundation of several factors. One of the most important factors is that of your payment history. Along with your payment history comes the age of your credit card accounts, credit inquiries and other factors. Payment history and credit utilization are the two that you really need to focus on if you are serious about increasing your credit score; at least for now. Creditors put a lot of work into avoiding making loans to people who are not going to pay them back. As such, you can imagine that is why creditors tend to shy away from offering favorable loans to people with low credit scores (i.e. people who pose more of a risk than people with higher credit scores.)
Credit utilization is the term that describes how much of your available credit you are using. This is the other area that you should concentrate on when trying to improve your score. The more of your available credit you use, the lower your credit score. As you inch closer to maxing out credit cards, you will notice that your credit score dips even lower. This is true even if you pay your bills on time each and every month.
Now that we have this information freshly in mind, let’s talk about paying more than the minimum monthly payments on your debts. In fact, there are even some credit scoring algorithms that can tell if you are paying more than the minimum. This is called the trended credit data and it keeps track of your habits when it comes to using credit. If you are someone who is always walking around with a high credit card balance, it will hurt your chances at getting the best loan terms. Being someone who pays off your balances every month (or comes close to doing so) actually helps to improve your chances of getting loans with favorable fees and terms.
For the reasons discussed so far, you can see why it is smart to pay off more than the minimum amount on your monthly bill. Doing so helps you to get closer to having all of your available credit at your disposal, which is a great position to be in. When you pay your debts off like this, you also pay less interest rates fees over the life of your loan, which amounts to more money in your pocket. Now you have a few great reasons to stop paying the minimum amount on your loans and lines of credit.
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