Credit Cards, Home Loans, Business Loans, Buy Now Pay Later – These are not the menu bar of a bank website but the list of common loans that one gets in their lifetime. The key determinant for all these credit options? Your Credit Score!
What Is A Credit Score? Why Is It Important?
Your Credit Score is a 3 number that lenders use to determine whether or not to approve your credit application. It assists them in making an informed lending decision. It varies from 300 to 900 points, with 700 being considered a good credit score for getting the greatest credit and loans.
Your credit score helps lenders to assess your credibility and repayment capacity. Borrowers ought to achieve and maintain a high credit score, typically 700 and above, to get the best deals on their loans. Loans processed with a high credit score are generally given the lowest interest rate and a higher loan amount.
But how does one improve their credit score for quick loan approvals? Here are some tips and tricks to help you:
1. Don’t miss out on payments
One of the most important aspects of your credit report is your payment history. It keeps track of how timely you pay your bills and make EMI payments. Having a history of late payments on your credit report is not a positive indicator. Repayment on time builds reputation and improves your credit score. As a result, make sure you pay all of your bills and EMIs on time.
2. Reduce the total outstanding on your credit cards
If you don't keep track of your credit card debt, your credit score could suffer. Credit card credit use should be kept to a maximum of 30%, according to experts. This helps you to conveniently pay your monthly obligations and avoid late or defaulted payments.
3. Avoid applying for too many credits at the same time
Multiple credit requests in a short period of time will negatively affect your credit record in the long run. With the wealth of information available online, borrowers should do thorough research on which loan to avail so that they can avoid multiple hard enquiries on their credit. Your credit score can improve within three months of the last hard enquiry if you manage your existing debts carefully.
4. Have a healthy credit mix
Around 10% of your credit score is determined by your credit "mix," which refers to the various types of credit you have on your report. When your credit report only contains one type of credit, such as credit cards, your score is likely to decline as a result of the lack of information.
A credit card, a student loan, a home loan, and a line of credit, among other things, can make up a healthy credit mix. This credit diversity shows lenders that you can manage a number of credit types appropriately.
Read more on ‘How Different Types Of Credit Can Boost Your Credit Score’
5. Check your credit report and fix any errors found
Check your credit score regularly. If you find an error on your credit report, you must rectify it immediately and then follow up to make sure it is fixed. If you do not correct the error, it will remain on your credit record, potentially lowering your credit score.
Request an investigation with the credit bureau that produced the report with the inaccuracy. Notify the lender who gave the credit bureau with erroneous information that you are disputing the information.
6. Get negative remarks resolved from your credit report
Collection accounts and late payments, for example, can remain on your credit report for up to seven years from the date of the first delinquency. Keep your credit score in good shape by paying your payments on time and keeping your credit card balances low. While eliminating negative entries off your credit report is difficult, paying off your bills is a smart idea, both to reduce the overall amount of debt you owe and to demonstrate your ability to repay your obligations.
7. Have at least one credit card to build your credit history
Many individuals think that having a credit card will lead to a debt trap and avoid getting one. This doesn’t help your credit score at all. Having no credit cards at all is just as bad as having too many credit cards. Revolving credit is provided by credit cards. Lenders want to see a long history of appropriate credit use, which you won't be able to demonstrate if you don't have a credit card. Despite popular belief, having no credit cards has the same impact on your credit score as having too many.
Here are some ‘Smart Ways To Use A Credit Card Your Build Credit Score’
8. Don’t close down old, unused credit cards
Even if we wish to reduce our credit card debt, it is preferable to keep old credit cards active by making little transactions on them. Credit cards increase your overall credit limit. If you cancel them, you will lose your credit limit. It is therefore preferable to keep them going by making periodic purchases and keeping them active.
9. Do not cosign on a debt
While you yourself are trying to improve your credit score, it is not a good idea to become a co-applicant on another debt. Co-signing for a family member or friend on a loan can drastically undermine a high credit score. For starters, the financial obligation will immediately appear on your credit record, and a bigger debt load may have an impact on your credit score. Second, if a friend or family member fails to make a payment, the missing installments will be recorded on your credit report. It will also reflect on your credit report if the account is eventually turned over to collections.
10. Don’t hesitate to seek professional help when necessary
The ultimate straw is realizing you need assistance but not receiving it. It's preferable to confess you're in over your head and seek medical help. There are a number of credit repair organizations that can help you with your debts. They'll work with your lender to come up with a solution. They can also help you manage your finances so that you can repay the loan. When they are skilled at what they do, it is worthwhile to compensate them.
To Summarize
Having a bad credit score is not a catastrophe. It is just a minor hurdle in your financial management that can be easily fixed. Just keep the above points in mind and seek professional help to improve your credit score and get quick loan approvals.