If you’re preparing to get a loan, you’re probably on your way to achieving a major new goal. Maybe you want to buy a house. Maybe you want to expand your business. Maybe you just need to renovate your bathroom. Whatever the case, borrowing other people’s money will certainly help.
But loans don’t just grow on trees. Depending on a number of personal qualifications, you may have a lot of loan options or very few. Of the available loans, you might only have options that are very expensive, especially if your credit score is very low. Most people don’t have a detailed understanding of credit scores, especially as they pertain to borrowing money. To learn about improving your credit score for the best possible loan possibilities, read on below.
To understand how to improve your credit score, you’ve got to understand what factors cause it to increase or decrease. Your credit score doesn’t just happen. It’s managed by three different Credit Reporting Agencies, each of which is a private company empowered by the government to keep track of consumer credit.They keep these records because lenders need to know how much risk they are taking on when giving loans to specific individuals. For example, Joe Tently might occasionally forget to pay his utility bills. Over the past two years he has had three different payments sent off to collections for failure to pay.
When Mr. Tently requests a loan, a lender will see that his credit score is low because of these three infractions. They will determine that he is somewhat likely not to pay back the loan they give him. The lender will either charge him more for the loan in interest and fees, or they’ll deny him a loan altogether.
There are many reasons why a credit score might be low. One is lack of credit history. If you’ve never had a credit card or borrowed money, you’ll want to do so before requesting a major loan. Open up a credit card account and never close it, even if you never use it to make purchases. This card will be a tent peg, marking the beginning of your personal credit history.
You can also improve your credit score by making sure to always pay your bills on time. If you have any unpaid bills (often represented as negative items of your credit histories, available online from the three credit reporting agencies mentioned above), try to pay them off. Clearing your unpaid debt history will dramatically improve your credit.
Also, pay off or relocate any credit that surpasses 30% of available credit on any individual account. Using more credit than this makes it look to creditors like you can’t make ends meet with your own income.
There are other ways to improve credit, but most of them are related to sensible and responsible financial habits. Do your best in this area, and your credit score will eventually represent the effort, providing you with the most and cheapest loan possibilities.