Maintaining a good credit score is highly important in today’s’ day and age when it comes to borrowing. This score will help the lenders assess risks and how likely can you as a borrower pay back the loan. Calculation of credit score happens via different models but it gets calculated based on the following factors majorly:
- How much debt you have
- Length of credit history
- Type of credit that you’ve taken out
- Your debt-to-credit limit ratio
- Payment history
- Open credit applications
This score also impacts whether you are able to take a personal loan or not and if you can, then at what kind of interest rate would you get on those loans.
Keeping these factors in mind, it becomes important to have a good credit score. Since the score isn’t permanent in nature, with determination and dedication one can try to raise the score to a good or an excellent level in case it’s falling short from ideal stage status right now. It’s important to do this as with a good credit score, you can apply for a personal loan and at terms favorable to you. This will help us to afford a lot of things in life be it education, property, automobiles or any emergency expenses, etc.
Here are 5 steps that will help you raise your credit score by 200 points to apply for personal loan:
Check the Credit Report
An error in a credit report affects your credibility as a borrower and makes one appear as a risk as it lowers your credit score. Hence, one of the foremost things to do as it is possible that your credit report might have errors. There could be errors in your personal information including name, address, phone number, etc. One should also make sure the accounts listed in the report do belong to you. The balances and the credit limits are should be verified whether they are correct or not. One should also ensure that the status of the accounts balance is reflecting accurately and double-check that each debt is listed only once in the report. In case there is an error, one should raise alert immediately and make sure this gets rectified.
Timely payment of bills
Payment history is a large part of the credit score as lenders would not want to lend money to people who have a history of not paying back what they have borrowed.
We have to ensure that we pay our bills on time and it’s recommended that we don’t end up missing bill payments. One should make sure you have drawn a budget which makes sure you have enough money left to pay your bills and in case one misses on paying these bills off as at times we tend to forget, you can always set up auto payments which ensures that a certain amount of money gets debited from your account in regards to that particular cost head on a monthly basis. This is a great place to ensure that the credit score doesn’t get impacted adversely and hence, the conditions to apply for personal loans are in your favor.
Paying Debt and maintaining low balances
A poor debt to credit ratio is can impact the credit score which in turn impacts your conditions to apply for personal loans hence, one has to ensure that we have paid off existing loans or any outstanding obligations we have. Lenders generally prefer a small debt-to limit ratio, which means the amount you borrow over the entire amount of credit that is made available to you. Low utilization ratios show that you responsibly use your credit. As a result, increasing credit limits can actually boost your score.
Secured Credit Cards instead of High Rate Credit Cards
Traditional credit cards have higher interest rates and are riskier than secured credit cards or debt as a loan. One can consolidate multiple credit cards and pay them off via a personal loan which has more favorable terms perhaps, a lower interest rate. Once those credit cards are paid off, ensure they arent canceled, as if you don’t utilize, it boosts your crest score as explained in the earlier point.
Limit Credit Inquiries
Every time you apply for a loan, mortgage, or a credit card the lenders will make a hard inquiry at your credit score. A high number of hard inquiries cause a red flag which can impact credit score adversely. Hence, it’s recommended to limit the overall number of credit accounts.
Another thing to keep in mind is that if collection agencies have purchased your debt, there is a chance that you can negotiate your balance. Lenders might be looking for a chance to recoup any money they can get and hence, making compromises possible. Coupled with the above-mentioned tactics, some very smart money moves, a little bit of patience and diligence, one can raise their credit score by 200 points making it easier for them to apply for personal loans. It will not happen overnight, but borrowers would finally benefit from educating themselves about how credit works and leveraging the same to maintaining or increase the score.