What is Credit Score?
Talking about improving credit scores, the first question that can come to someone’s mind if they’re new to loans and credit cards would be, “What is credit score?”
Investopedia defines credit score with respect to the US market, as a number ranging from 300-850 that depicts a consumer’s creditworthiness. The higher the credit score, the more attractive the borrower. A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.
These scores are also called FICO scores.
How Does Having a Low Credit Score Affect You?
Bad Credit, or having a low credit score can lead to quite a lot of repercussions. It becomes harder to get most loans and qualifying for credit card becomes almost impossible. Credit card companies that do offer a credit card, would usual keep the limit very low and almost unusable. Further, having a bad credit score would mean that even insurance policies might be landing more expensive to you. At times, though not too common, some employers might run a credit check on an employee before promotions to a job role that involves handling money and an employee with a bad credit history may be overlooked for such a role.
A limited number of loans may be available to bad credit borrowers and institutional loans like bank loans would virtually be impossible until there is an improvement. The available loan options are bound to be more expensive to borrow than the unavailable ones as the risk that a lender is taking while accepting to lend you money, is higher. In such a situation, Bad Credit Loans or No Credit Check Installment Loans from a trusted direct lender, can be an ideal solution.
What can you do to improve that Credit Score?
There are a lot of things that add up to your credit score and focusing on these individually is the most common way people employ in order to work towards an improved credit score. We shall discuss five of the most effective ways to improve your credit score. But before that, it is a good idea to run through your credit report which you have one free access to, each year. It is important because apart from helping you reflect upon a major part of your financial history, it also helps you identify inaccuracies in the records, which do happen. If you find an error, it is important to file a dispute. If the error is a major one, there are credit repair companies that you can look for and approach, in the situation that your dispute is not being attended well to.
Now we shall take a look at what are the ways in which your credit score can be improved, assuming that the credit history is accurate.
- Focus on what to improve: You might want to start out by prioritizing your credit improvement focus subjects. Paying bills on time, paying back outstanding debts, retaining old accounts, applying for loans only when you’re likely to complete the application and take the loan – these are good practice, all of which you need to incorporate if you don’t already do so.
- Ask to get added as an authorized user: When you get added as an authorized user on the account of a friend or a family member with a strong credit score, it helps improve your credit score to an extent.
- Maximize Limits and Reduce Usage: If you have an option to increase your revolving credit limits like the limit on your credit card, it makes it easier to use a smaller percentage of your limit. Not exceeding 30% of your credit limit over a period of time on such a product helps you improve the credit score. People working on this and in need to borrow money while these efforts are in progress, often opt for Bad Credit Loans from direct lenders, which are available irrespective of the credit score.
- Replace Conventional Loans with No Hard Credit Loans: For a limited duration of time, it can be beneficial to take loans when you need, that skip the Hard Credit Check. Hard Credit Checks are done by institutional lenders like banks and also some other lenders while processing a loan. Multiple loans and even enquiries are bound to drop your credit score. A No Hard Credit Check loan on the other hand, does not affect your credit health.
- Don’t Close a Credit Card: People frequently tend to believe that when having three credit cards, giving one up will be beneficial to the credit health. However, this can be untrue in many and also most cases. To understand this, think of you limit on each card as $100. Now let’s assume you use only $90 in a month so even one credit card is actually enough. However, $90 would mean 90% of one credit card or 30% of three credit cards if you manage to split the expenses well. Using 90% of your credit limit will harm your score while 30% of your credit limit would be beneficial.
These above ways are great for improving credit scores but we must share that each of them may have certain added expenses related to them and it is important for you to know that and understand it well, before making any decision. A healthy practice is always to ensure you remain in a financial position to clear outstanding debts on time. Eventually that leads to a good credit score, which shall be with you to help you borrow money conveniently when you need to.
References for Credit Score
1. Investopedia: https://www.investopedia.com/terms/c/credit_score.asp