When you want to qualify for a personal loan, the first thing that your lender is going to look at before determining whether you’re eligible for the loan is going to be your credit score. If your credit history is a poor one, you’ll struggle to qualify for loans and may even be flat out rejected to get a loan. It’s important to know that you can improve your credit score, but you must go about it in the right manner and know that it is going to take some time. The higher your credit score is the lower your interest rate is going to be on the loan.
A lot of people have poor credit scores, and that is why they get rejected when they apply for loans. The good news is that you can improve your credit score through different steps, such as paying your debts and your bills on time. To give you a better idea, Bonsai Finance is going to provide you with some excellent tips that will help improve your credit score, so that you have no problems in qualifying for a personal loan.
How Are Credit Scores Calculated?
The first thing you should know is that you have several credit scores because a mathematical algorithm is used to calculate the credit score. All lenders and financial institutions apply their own algorithms to compute these scores, but you shouldn’t be worried about having different scores. This is because the factors that increase or decrease your credit score are all the same, and they consider how often you have applied for credit, what types of accounts you have, how long your accounts have been open, how much credit you use regularly, and your payment history on credit cards and loans.
With that out of the way, we’re now going to look at some of the different ways you can go about improving your credit score.
· Pay Your Bills on Time
One of the easiest ways to acquire a good credit score is to pay all your bills on time. When you’re consistent in paying your bills, your credit report doesn’t get any negative marks, and this indicates that you’re a creditworthy consumer. The first thing lenders look at is whether you’re creditworthy which is why you’ll need to prove to them that you can handle your finances responsibly in the long-term. When you pay your bills late, all the major credit agencies will get a report about you, and that will have a negative effect on your credit score.
· Look for Different Types of Loans
If you’re searching for a student loan, credit card loan, or a home loan, you should do your research to find the rates and their availability. You should know that every time that you apply for credit, you’ll lose a couple of points on your score. If the lenders learn that you’ve applied for multiple loans in a short period, they’ll think that you’re trying to get financed for something, and it’s not a pattern. It’s important that you’re not seen as a person that keeps borrowing money for different reasons since lenders know that prudent borrowers are going to search for the best loan.
The score lenders use most commonly is the FICO score which doesn’t look at credit inquiries over the past month. It’s understandable that if you’re trying to purchase a home, you’ll be making several inquiries in a short period.
· Have Your Report Mention Your Debt
There is a misconception amongst a lot of people that it’s bad for you to leave old debts, which have been paid on your credit report. That’s wrong because if the debt has been paid off before time, it will only improve the credit report, which will have a positive impact on your credit score.
Therefore, you should leave your old debt on the credit report, and if you’ve got a reliable and consistent payment record, you should leave your old account open. This is because if you’ve got a good relationship with your credit, then closing your account isn’t going to help you.
· Resolve Credit Card Balances
All the small balances you’ve accrued on your credit cards are going to add up, and it’s in your favor to make small purchases on one card, instead of making them on different cards. That will allow you to improve your credit score, as only one account will be charged. You must pay off all the small balances on your credit card and then only use one account for purchases you make every day since you don’t want to have several balances on your credit report.
· Balances on Your Credit Card
While we’re talking about clearing the balances on your credit card, it’s important that you know that the smaller the amount, which is available on your credit, the better it is going to be for you. The best range is around 30%. If you’ve got the credit of about $10,000 on your card, you shouldn’t let that figure go higher than $3,000.
· Credit Scores and Personal Loans
Personal loans are used commonly for consolidating existing debt, as they can help your score in the long-term by helping you balance your revolving credit. This is one of the most important steps for you when it comes to improving your credit score. Apart from being a customer that is responsible, you shouldn’t have anything else to worry about, apart from how healthy your credit score is.
If you’ve got a long track record of paying your debts on time, your credit score is going to be a healthy one, which will allow you to acquire low interest rates on personal loans. You can easily move things in your favor by using common sense and being patient. It’s important that you pay attention to all the requirements for personal loans so that you don’t end up missing out on making payments on time, as that will negatively affect your credit score and hence, higher interest rates on personal loans.