6 MEASURES YOU SHOULD TAKE TO AVOID A BAD CREDIT SCORE
Lenders do not approve all loan applications. Borrowers are supposed to pass eligibility to be approved for loans. Borrowers need to be aware of these eligibility requirements and assess the probability of being approved before sending applications. You do want to submit an application knowing it is going to be declined. This will be damaging to your credit. Also, there are some excellent loans and lenders, as well as those ones you need to shun. For more information, go to website and learn more.
One of the most common eligibility requirements is good credit. Nearly all lenders look at borrowers’ credit scores before making lending decisions. A credit score refers to a three-digit figure that ranges from 300-850, which shows the creditworthiness of lenders. Most lenders prefer a score of at least 700 points. It requires effort to build credit. However, the credit score can easily fall if you are not careful. In this blog, we are going to discuss the measures you need to take to avoid a bad credit score. Let us begin right away. Don't use plagiarised sources.Get your custom essay just from $11/page
Understand What Contributes To Credit Score
It is illogic to think that you can actually control what you do not know. Understanding the elements that constitute a credit score will make it easier to manage and retain a good score. In general, there are five essential elements used to compute the credit score. This include
- The age of credit
- Credit mix
- Payment history
- Debt level
- Recent credit.
Other things do not affect credit. For instance, checking account overdrafts as well as utility payments may not automatically impact the credit score. Once you know the factors that influence credit, it will be easier to utilize them to your advantage.
Pay Bills at the Right Time
You are supposed to pay all your bills according to the stipulated time. This is very important because payment history is a credit factor. Most lenders report payments to credit rating agencies. Even though some bills may not be reported, they might be reflected in your credit report in case you fail to pay in time or default. Did you know that even a minimal fee charged on the library can end up hurting your score? If you want to maintain a good score, then continue to repay bills whenever they fall due. Nevertheless, we are aware no one is immune to the circumstances that might limit the abilities to obey financial obligations. For instance, you may be plagued with an emergency and therefore become unable to pay your bills on time. But still there things that you can do to avoid hurting your score. For example, lenders are humans, and they are sometimes very understanding. Whenever you anticipate the inability to pay bills in time, make efforts to talk to the lender in advance. Your payment schedule may be adjusted, though at a cost.
Maintain Low Credit Balances
People who maintain higher credit balances with regard to their credit limit soften have a low credit score. In general, your total credit card balances are supposed to be not more than 30% of your overall credit limit to maintain a good score. While you may intend to repay your bills right on time, charging your credit limit above 30% is quite risky. Generally, card issuers often report the balances in case the statement closes, and therefore that the figure that will be indicated in the credit report. So then, keep tabs on your personal accounts and do your best to limit your credit utilization to a maximum of 30% prior to the closing of the billing month.
Avoid Closing Your Old Credit Cards
Credit card companies stop updating credit agencies whenever a credit card is closed. For this reason, the formula used to compute your credit score puts less emphasis on the inactive accounts. Usually, credit rating agencies scrap off the history of closed accounts from an individual’s credit report. What impact does this have on your score? Well, the average age of the credit will shorten, and as a result, your score will dip. Additionally, closing credit cards has yet another devastating impact. The available credit lessens. For instance, in case you have three accounts with an overall limit of $12000, and you happen to close the one with a limit of $4000, your limit will lessen to $8000. Since you are aiming at maintaining a maximum of 30%, closing such an account will lessen your overall threshold by $1200.
Manage Debt
At all points, it is vital to manage your debt. It is not only credit card balances that have the potential of influencing your score. Outstanding loans, as well as lines of credit, have significant effects on the level of debt. Importantly, having a lot of debt can lessen your credit score by several points. Having a lower level of debt makes it easier to have an excellent credit score.
Limit Credit Applications
Whenever you apply for new credit, lenders often make an inquiry for your credit history. According to financial experts, a single has the potential of hurting your score by up to 10 points. This means if you make 10 applications, your score is likely to dip by up to 100 points. The point is, credit inquiries lessen credit score. For this reason, it is vital to ensure that you only apply for credit when it is absolutely necessary. Also, it is vital to keep checking your credit report for errors. You might be doing everything regarding your credit in the appropriate way. But that does not mean even the credit agencies do the same. There is a possibility of errors being reported on your credit history, and this can significantly damage your credit score. So make sure you regularly check your credit.
The Bottom Line
A credit score is one most essential elements that lenders examine before approving or declining loan applications. Several factors influence the credit score. Knowing these factors can help you manage your credit and maintain an excellent score. In this blog, we have discussed six measures that you should put in place to ensure you retain your good score. But can you obtain a loan with bad credit? That question will be answered in our next blog.