Just like how your grades in school measure how you performed as a student, your credit score is also used to measure how financially healthy you are. A credit score is a metric that puts value into your creditworthiness and is used by all lenders to evaluate you; your credit score will play an important role in the bank’s first impression of you. The higher the credit score you have, the more chances you get approved for loans and other credit facilities.
However, if you already have bad credit, applying for a loan can be difficult, although not impossible. Thus, to make the entire process of applying for a loan go smoothly, you need to improve your credit score.
Here’s how:
The Longevity of Credit Accounts
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One factor that’s taken into consideration when computing your credit score is the longevity of your credit accounts, such as credit cards. This means that the older your credit card is, the higher credit scores and creditworthiness you get.
So, if you already have a credit card, it’s advisable that you don’t close it down. At the same time, don’t let it remain dormant by using it from time to time.
Settle Bills on or Before Due Date
Part of the factors that determine your credit score is your payment history. This doesn’t only take into account your payment history for existing loans, but it also takes into consideration your payment history for electric bills, phone bills, credit card bills, and other kinds of bills you are paying for.
To improve your credit score, make sure that you make timely payments on any kind of bill you have. Corporates submit a report on how responsibly you pay your bills on time. This has a very significant impact on your credit score.
Even a loan that has the least requirements when applying, such as payday advance loans, will check your credit score first. Even if you’ve only missed one payment, this can already put a dent on your credit score. As part of best practices, use calendar alerts to remind you of your payments.
Avoid Bounced Checks
It’s important to make sure your checking account always has enough balance. Just one bounced check will create a lump in your credit score. This is a major offense that banks don’t ignore.
So, if you issue a check, always take a look at your account and see if you have the correct amount just to be certain.
Don’t Use Up Your Credit Limit
Your credit score is also affected by how much you use up your credit limit. That’s why you need to use your credit card sparingly. The farther away you are from your credit limit, the more attractive you become to lenders. Make sure your credit card balances vis a vis your credit limit is at a healthy level of 30% or lower.
If you have a higher outstanding balance, then your credit limit gets more used up. The reason for this is because higher credit utilization is a tell-tale sign that you’re already maxing out your credit and the inability to pay off remaining balances.
So, as part of the best practices, you must always manage your outstanding balance and not maximize your credit limits. You can also start paying your bill or credit cards even before the due date to increase your available credit and lower down your outstanding balance.
Check If Your Credit Report Is Correct
Did you know that you can actually check your credit reports before you apply for a loan? Your credit scores are solely based on credit reports. Credit reports are available for you to access only if you ask for it from credit reporting agencies. Make sure that the information on all those reports are accurate because one error can pull down your credit score very quickly.
Review the credit reports very carefully. Errors that you should look out for are incorrect balances or numbers and outdated data or statistics. If you see a mistake, make sure that you try to talk to the credit reporting agency and try to rectify the mistake.
Conclusion
Whether you think you need to loan or you don’t, it’s best to be prepared for any kind of situation. There might be a time when you decide to start a family and need a home loan.
When you have children, there might come a day when you need an educational loan. So, follow these key ways to improve your credit score before you apply for any kind of loan.
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