A credit score is used to determine the creditworthiness of the person. In simple words, credit score tells your financial responsibility and creditworthiness to the lender and the insurance company. Based on these three digits, the moneylender establishes the interest rate for you.
What is Credit Score
It is a three-digit score that’s calculated by the credit bureaus. You can request your credit report from these bureaus to get an idea of your current score. Now, your credit report has a great impact on your credit approval. Most moneylenders consider your credit score to decide whether they should accept or decline your loan application. The main components that are used to calculate your credit score are your payment history, the number of hard inquiries, total debt, and mixed credits.
Credit scores above 690 are considered good and they also indicate your creditworthiness. Anything below that will be fair, satisfactory, or poor. The good news is you can improve your credit score, but it takes time and patience. Here are some tips that work.
Never Delay Your Payments
The most important component of a credit report is your bill payments. How you paid your bills in the past is considered the indicator of how you are going to repay your loans in the future.
If you have a poor credit score because of late payments, then you can improve it by paying your credit statement bills and utility bills on time. It’s never too late to improve. Keep calendars and reminders for your payments. If you have borrowed loans from multiple lenders, consider getting a consolidated loan to combine all your credit accounts and divide your income equally among all lenders.
Your credit reports will feature the payment records of 7 years, which means the missed or late payment will be displayed on these reports for a very long time. So, make a habit of paying your bills and installments on time.
Do Not Close Your Credit Card Accounts
If you have an unused credit card or an account that you barely use for buying goods on credit, keep them active. You must keep these accounts open as long as you can make timely payments. The longer the credit history you have, the higher your credit score will be. The length of the credit score is one of the crucial factors in your credit reports. However, this trick works only when you are certain you can repay your debts with interest in full and on time. It’s better to close the credit accounts than missing payments.
Get a Customized Credit Limit
Each credit card comes with a certain limit. Your job is to restrict your spending according to the credit limit. The more you spend, the higher the interest you will pay, and the longer your repayment duration will be. If you can’t control your expenses, then get a credit card that comes with a customized credit limit. Some companies are willing to negotiate the card limits and other terms based on the borrower’s requirements. So, talk to your lender and see if there’s any chance they can increase your credit limit.
Don’t Borrow Too Much
The reason why lenders request the credit bureaus to send your credit report is that they want to know how credible you are. They can’t trust any random borrower with their money. So, the credit report seems to be the only way they can determine your reliability. Lenders consider too much debt a negative indicator. The more you borrow, the lesser your credit score will be. So, repay your previous debts first and then consider getting another loan.
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