Many people nowadays rely on loans for big purchases and for emergency situations. You’ll never know when you would need to borrow money that’s why it’s important to maintain a good standing on your credit score. A good credit score will make it easier for your loans to be approved. Moreover, your interest rate will be lower.
Having a bad credit score, on the other hand, may cause your loan application to be turned down. Even if you find a lender that will approve your loan, the interest rate would be much higher than a regular loan because of the risks involved. So what should you do to avoid getting a bad score? Here are some ways on how to build your credit score so you wouldn’t have problems getting a loan approved when you need it.
Pay in Full or at Least the Minimum Amount Required
As much as possible, pay your full balance. If for some reason you can’t pay the total balance, pay at least the minimum amount required. A couple of missed payments may not hurt your credit score. However, if it happens all the time, expect a lower rating.
Pay on Time
Aside from paying the full balance, it’s also important that you make your payments on time. If possible, set up auto-payment to automatically pay your bills. This would prevent you from forgetting about your due. You may be charged for late payment and making it a habit could result to a bad credit score.
Do Not Max Your Credit Limit
While you are allowed to borrow money up to your credit limit, it’s recommended that you don’t max it out. Lenders may think twice before lending you money as they would be concerned if you’ll be able to pay your balance. As mentioned, while there are lending companies that may be willing to lend you more credits, the interest rate would be high because the risks are also high.
Don’t Move to a Lower Limit
Moving to a lower credit limit may seem like a good thing. It is, in such a way that you would not be tempted to max out a higher amount. However, the gap between your available credit and your balance would not be too far. The higher the gap, the better the credit score as it will show the lenders that you’re responsible in managing your loans.
Limit Requests for Credit Quotation
Getting more than one credit card or loan is not bad as long as you are able to pay them on time. If you do, this will even help you build a good credit score. However, having too many credit accounts is also not a good thing. Again, lenders may be concerned with your ability to pay on all your credits.
This is also true when shopping for quotes from different lenders. These inquiries could make them think that you’re planning on applying for more loans, even though you’re just comparing quotes to find the best deal. Limit your quote requests to prevent your credit score from being hit.
Don’t Close Old Credit Cards
Closing old credit cards, especially those that still have balance could affect your credit ratings. Pay off your due in order to build your credit score. Even if you have fully paid your remaining balance and you no longer wish to use your old credit cards, it’s best not to close them as lenders consider the longevity of your credit accounts. The good credit record that you have built on your old accounts would be put to waste if you close them.
Check Your Credit Report
You can get a free credit report from the three major credit bureaus so take advantage of it. Check on your credit history to make sure that all information is accurate. Dispute any incorrect data that you see, which is affecting your credit score.
Get a Credit Card and Control Your Use
Not having any credit is good since you don’t owe anything to anyone. However, this may also affect your loan application, especially on big purchases since you don’t have a credit history for lenders to check. It’s one of the vital factors that the lenders consider when deciding if your application will be approved. Again, apply for credit cards but make sure that you pay your balance on time.
Maintain your credit score to make sure that your loan application will be approved when you need to.