One of the factors that affect a person’s loan application being rejected by a bank or other financial institution is a bad credit score. Before giving out a loan, financial institutions (such as banks or finance companies) explore the risk profile of the prospective debtor. One of them is through credit scores.
What is a Credit Score?
A credit score is a measure of a person’s creditworthiness, in the form of numerical figures that are calculated algorithmically based on information contained in credit reports. This score will be a reference to determine whether the loan application is feasible to be approved or rejected.
Credit scores generally range from 250 to 900. The higher a person’s credit score, the lower the person’s risk level. That is, the person has the ability to pay their obligations, and vice versa. A good credit score means you have gained the trust of financial institutions.
Here are tips for improving credit scores to make it easier to get loans quoted from various sources:
1. Take advantage of credit cards
If you want to have a good credit history, the first thing to do is to have a credit transaction first. One can start building a credit history from the simplest way, which is to apply for a credit card.
However, you must use your credit card wisely as needed and make payments on time so that the credit score is maintained.
With credit data and credit payments consistently through the use of credit cards, a person’s credit score can also be calculated so that a person’s risk profile can begin to build.
2. Limit loans to no more than 30 percent of total monthly income
Credit scores have the potential to be low, if the total loan reaches 30 percent or more of the total income. Creditors will think of you as a potential debtor who is at risk of experiencing bad credit and is less responsible.
Therefore, you should first complete an installment or loan before applying for a new loan. This is to show that you are a responsible and trustworthy person.
3. Pay bills on time
The smooth and commitment of paying bills on time is the key to improving credit scores. Paying late will have a negative impact on your credit score.
So you don’t forget to pay your bills on time, you can use the automatic payment feature or use a calendar reminder.
4. Save unused credit cards
According to Experian, a global consumer credit rating company, keeping unused credit cards active, as long as it doesn’t burden you with annual fees is a smart strategy to maintain credit scores.
This is because closing a credit card account can increase your credit usage ratio. Having the same amount but having fewer active accounts can reduce your credit score.
Keeping a good credit history by maintaining a good credit standing is the very first thing you should know if you want to get a loan in the future, regardless if it is for personal expense or for starting a business.
Need financial help due to car accident?
If you are facing a legal case due to car accidents, and if you need urgent financial help, you may consider talking to your lawyer or any legal officer to help you take out a car accident cash advance. This type of funding is specially designed to help people facing legal issues and expecting settlement in the future.
This type of funding doesn’t look into the plaintiff’s credit score and thus you don’t have to worry if you have bad credit because this type of loan are in fact cash advances and issued to you based on your pending legal case.