Getting funds from a moneylender is much easier when you maintain a good credit score. Your chances of getting approval are mostly affected by two important factors. Firstly, lending money involves many risks and your credit ratings show how dependable you are to your potential lenders.
Secondly, your credit score determines the type of conditions that will apply to you. The loan interest rates and your chances of getting credit depend on how good your credit score rating is.
Moreover, it is uncommon to find out that credit scores are needed for things like renting a place, setting up the car and home insurance, as well as registering for a specific mobile phone plan or utility.
You might ask what the need for maintaining a good credit rating is. Retaining a good credit score can be converted into a large stack of money in terms of interest savings. This money can be used for other profitable investments. However, if have not been successful in managing your credit, you do not have to panic. You can still apply for bad credit loans and get approved.
Definition of a credit score
A credit score can be defined as a statistical expression that makes it easier for lenders to evaluate your credit at any given time. It judges your ability to repay a loan on its due. If your history looks good, your chances of getting a loan increase.
Most lenders use three credit bureaus (TransUnion, Equifax, and Experian) to get information about your credit history. Looking at you credit profile, most lenders will look for the following criteria:
- Payment history
- Any outstanding amounts
- Length of credit accounts
- Type of credit
- How recent your new credit was received
Better credit scores improve your chances for better rates and better loan conditions.
How can I improve my credit score?
Your credit score will not change overnight, as it would involve many steps. The best way to start is by taking charge of your current debts and reducing the number of new accounts. Listed below are a few options that can help:
Payment history
Try to make all your payments at the agreed time. One late payment can affect all your good records.
Outstanding amounts
If the percentage of your current debts is relatively higher than your total credit, it affects your credit score in a bad way. Keep your debt levels at a maximum of 30% and avoid overtime charges.
Credit account age
A properly managed credit account that has been open over an extended period improves your credit score.
Credit type
It is much better to get a home loan than a financial company loan. Look up for advantages and disadvantages of registering for a “no interest for a year” financial plan.
New credit
Reduce the number of times you apply for credit. A lender can view it negatively, and it can lower your score.
Moreover, here are a few things you can add for better results:
- Reduce unnecessary expenses
- Save money to pay your debts
- Pay up and shut down multiple credit accounts
Credit counseling
Credit counseling or debt management agencies help manage your credit. These non-profit organizations offer different types of services.
A credit counselor will work hand in hand with you and your lenders to provide a solution. Lenders jump at these opportunities because it helps them get their money back. Improving your score is directly proportional to improving your credit, and it paves the way for acquiring higher credit limits with better conditions.
Importance of maintaining your credit
Your credit history will always haunt you wherever you go like a ghost. Irrespective of having a high or low score, you have to pay considerable attention to your credit situation.
Credit card companies also allow you to track your credit score without any cost with their apps. This will help you to control your score and find mistakes on your account.
Do you really need a perfect credit score?
The answer is no. Lenders are not searching for clients with excellent credit. A good credit score just improves your chances for a good loan and makes it easier to qualify.