Credit scores can be improved by making a few changes to your financial situation and although it isn’t a fast process, implementing a plan of action to move towards your goal will help. Many people who find themselves with bad credit have usually declared bankruptcy, missed loan repayments and failed to need their obligations with lenders and creditors. If you have bad credit you will find it more difficult when you need to borrow money online or in store and fewer lenders will be willing to lend you money on favorable terms.
A good credit score however, enables you to be accepted for loans much easier, in turn resulting in better financial security and potentially a more stable financial position for the future. Understanding how to gain a better credit score means that you should first know what could be affecting your credit score negatively, making it more difficult to access loans and credit.
What Are Credit Scores?
A credit score in the US is determined by different factors, including; payment history, credit history length, new accounts, credit mix and credit utilization. This information is then taken a credit score is given, either through a FICO score or a VantageScore, which can range from 300-850. This score allows a lender to know how likely it is that you will make the repayments on time. Credit scores are one of the first things that many lenders and credit providers will assess for any borrower before approving or rejecting you for a loan or credit agreement.
Whether you need to borrow $500 or you are applying for a larger £2000 loan online, your credit score will be checked by lenders to check and assess your creditworthiness and understand the likelihood of you repaying your loan on time, or defaulting and missing the scheduled repayments.
Why Is a Credit Score Important?
A good credit score means that you will have huge financial benefits and better trust from credit lenders. You will be offered lower interest rates, potentially saving large amounts of money, requesting a loan will be easier alongside better rates on a mortgage, and can even determine what kind of phone plan you’re offered. In the eyes of the bank or credit lender, you are essentially defined by your credit score and this determines your financial offerings.
A person with a low credit rating is considered a low-risk borrower and has more options, likely being offered competitive loans or rates by different lenders.
One example is that of a $50,000, 15-year home equity loan. In this case, a person with a lower credit score could pay $22,500 more than someone with a high score, as a result of the lender placing additional fees and a higher interest rate on the loan for the person with bad credit.
What Is Contributing To My Bad Credit Score?
Although you might be good with money, sometimes that isn’t enough to show that you will be a reliable candidate when applying for a credit loan. You should always seek to understand why you have a bad credit score. Here are some contributing factors that could be causing your bad credit:
Not choosing the correct credit card for your personal situation
You may have a credit card with high-interest rates or that requires repayments in short periods of time. Be sure to stay within your balance limit and make the repayments on time. This can be done by setting yourself reminders or setting up scheduled, internal transfers. Missing payments are one of the biggest reasons why people are associated with poor credit ratings and gradually lead to a ‘poor’ or ‘very poor’ score being recorded.
Not having a credit history can affect your credit score negatively
Not owning a credit card or taking out a previous loan, can affect your credit history negatively, too. This seems strange, however, with no prior information on how well you can make re-payments, a credit lender won’t know if you are reliable.
Making multiple applications for loans and credit
If you find yourself making numerous applications for credit, loans and other financial product, you will more than likely leave a credit footprint on your credit file. This means that other lenders and credit providers will be able to see that you have been applying for credit and loans in one form or another. If that is the case, it will appear to lenders that you are in financial difficulty. The assumption is that multiple applications close together suggests a borrower is getting repeatedly rejected as a result of their bad financial practices, which in turn puts of additional lenders and credit providers, perpetuating the problem for you.
Missing scheduled repayments
One of the most common but also most damaging ways to contribute to bad credit is to miss scheduled and agreed repayments with a lender or credit provider. For example, if you have a payday loan or even a credit card which has a scheduled date for repayment and you miss this, you will negatively impact your credit score for the future. This is because if you miss scheduled repayments, you have essentially breached your contract with the lender. This indicates to future lenders that you are less likely to repay your loans and you are therefore less creditworthy than someone with a good or very good credit score.
You are not on the voter register
If you are not on the voters register, it is harder to confirm your identity and where you live. These are both two important criteria for lenders to be able to lend you money. If you are not on the voter register, it will be harder for lenders to confirm your home address, making them less likely to loan you money. Adding yourself to the voter register is a relatively easy way to help improve your credit score.
What Should I Do To Help Improve My Credit Score?
The first action should be to focus on repaying any outstanding bills promptly and, if possible, you should try and organise a consistent payment plan that suits your specific situation. With this done, you may need to set yourself some reminders to ensure all of the repayments are made on time; missing these dates can incur unwanted late fees. During this process, you should also dedicate some time to double-check that all of the information is correct and you haven’t been overcharged. If you find any errors be sure to rectify them immediately.
It may take months to get back on track and feel like you have a good routine for paying your bills, but once this is done you can now start looking at other ways to build your credit profile. For example, only spending 30% of your credit card limit and repaying it on time will help increase your score. You may seek out bad credit loans with guaranteed approval to help get you the finance you need to rebuild your credit score over the medium and longer terms too. Another suggestion is that you may want to get your credit score checked, you can find this through many online platforms. This report will give you beneficial information, such as what is both benefiting and threatening your credit score the most.