Bad credit history can deny you a chance to secure a mortgage for your dream home, finance your education, acquire capital for your business, or even prevent you from landing a job. Lenders will always want to look at your credit score before approving your loan application. Fortunately, there are several ways to build your credit score.
Although it may take time, it will increase your score in the long run and give you high chances to acquire financing from your lender. Here are ways to improve your credit score.
Borrow What You Can Afford to Pay Back
When you borrow more than you can afford to pay, it shows your lender that you cannot manage finances well. This reduces your chances of your lender approving the loan. In this case, ensure you only borrow within your limits to avoid excessive debt.
When you pay back your loans on time, it boosts your credit score and shows your lender that you’re a financially responsible person who can pay back a loan on time.
No lender wants to give money to someone who can’t manage finances well because it is a high business risk. Therefore, before you apply for a loan, review its terms, and compare it with your budget to know if you’re capable of paying back. The bottom line is that your loan shouldn’t exceed your budget.
Pay Your Bills on Time
When lenders ask for your credit history, they focus on checking if you pay your bills on time. This usually helps the lender make future predictions about the borrower’s capabilities to manage a loan.
Ensure you pay all your bills as expected (even if you have to sell some of your stuff) to avoid lowering your credit score and rather increase your score. When clearing your bills, don’t only focus on credit card bills.
You should also pay utility, rent, and phone bills on time, no matter how small or big the amount is. For consistency in paying your bills on time, you can set reminders to help you keep up with the timings. Avoid late payments at all costs.
Get an Installment Loan
One of the easiest ways to build good credit is through the judicious use of installment loans. For one thing, an installment loan can help you before your credit is good enough to have a credit card. Second, if you get your installment loan through a reputable company, it may actually help you build your credit–provided you pay it back in full and on time. The company will report your payments to the credit agencies, and you’ll be establishing credit in a manageable, beneficial way.
Avoid Applying for Many Credit Cards
Some first-time card users often get excited and apply for many credit cards, leading to an accumulation of many cards within several years of using credit. Making many credit card inquiries with many credit cards can negatively impact your credit rating. When you make credit card inquiries, it lowers your score by 10%.
Also, opening a new credit card decreases your cards’ average age by 10% of the credit rating. So, avoid applying for many credit cards often because it can trigger you to use more credit, and it may not be easy to maintain good balances and manage your payments.
Don’t Overuse Your Available Credit
Avoid using too much credit. This affects your credit score, and it shows the lender that you cannot repay what you borrowed.
This happens when you accumulate huge credit card balances without paying back. Therefore, ensure you keep your balances low and relative to your credit limit to help you improve your credit score.
Also, pay back high balances on your credit card before the expected closing date. This will help you avoid high balances on your credit card, which will be used against you when calculating your credit score. In short, use every opportunity to ensure you improve your credit score.
The Bottom Line
A good credit rating is the best way to get any financing you may need from any lender. It does not only help you get the loan, but it also improves your chances of getting good interest rates and better terms for your loan. Using the tips above will help you improve your credit score and open great financing doors for you. All you need is to remain consistent with the above tips as you aim to improve your credit score.
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