You may be able to set up a loan with bad credit history, but the interest rates are likely to be higher. To improve your chances of getting a loan at low rates, you should aim to maintain good credit history. Many people know that it is important to keep a good credit score if they wish to borrow money on good terms. Despite that, some people are not aware as to how they should do that.
Below are the tips that will guide you on how to spend your money wisely and maintain a good score.
Keep Track of Your Score
To keep a good credit history, you should track your score. Authorities issue a free credit report once a year. Request a copy of this report every year to assess your score. This allows you to see where you currently stand and what you need to work on. You can also look at the credit inquiries and ask for corrections if you spot anything that is affecting the score.
Agencies calculate the score on the basis of following:
• Your recent loan
• Credit mix
• Age of loan
• Level of debt
• Repayment history
Your salary does not have a direct impact on your credit score. For example, if you are earning a high salary, it will not boost the score. Similarly, low salary also doesn’t impact the score. However, it might affect how you pay the bills and make debt repayments, which defines the credit score.
Pay Bills on Time
Yes, that’s right. You must pay all the bills on time. This includes utility bills, credit card bills and any other bills. Credit agencies won’t get a report if you do pay your bills on time, but if you fall behind, it will affect your credit report. It can be anything as small as a parking ticket or a library fine. If you fail to pay them on time, it will adversely affect your score. Therefore, aim to make every payment on time, as it will allow you to secure a debt on favourable terms in future.
Make Timely Repayments
Nowadays, people take on debt to finance anything and everything. They get an auto loan to buy a car, a mortgage to buy a house, and even take a loan to finance their studies. This is why it is very important to make timely repayments. This will directly impact your credit score. Missing a repayment or delaying it is not good for your financial health.
Late and missing payments are always reflected on your credit report. This lowers the score and reduces your chances of getting a loan in the future.
Don’t Take Excess Credit
You should apply for a loan only when you need it. Too many people apply for credit cards or take small loans to meet their personal or business expenses. This is not the right approach, especially if you plan to apply for a home loan in the future.
Every time you apply for a loan, there is an entry on the credit report. This entry adversely affects the score and lowers your chances of getting a loan on favourable terms. Credit agencies and authorities treat every application differently. For example, they might treat a payday loan application differently than a bank loan. The reason is simple; payday loans carry high risk.
Also, we recommend you aim to keep no more than two credit cards. If you fail to pay your credit card bills on time, the debt will keep piling up and it will not be easy for you to pay it back. Keep your card balance within 30% of the credit limit. Credit card companies report the balance after closing the statement. A high balance leads to a lower credit score even if you fully make the payment.
There are so many people who frequently take out a loan or draw more money from a credit card without paying other bills on time. This shows that you are spending more than you can afford and cannot manage your debt efficiently. Therefore, aim to limit your spending and not live beyond your means, especially if you plan to apply for a mortgage or any other loan in future.
Speak to Hunter Galloway about our money saving tips and how we can help with your finance portfolio now.