Your credit score today is vital in obtaining a new financing plan.

What is a credit score?

It is a reflection of the payments of your utility bills, credit card or any other previous financial plans that you have been granted. It also includes the number of open accounts, and the total amount of debt that you must repay, currently. It is calculated to estimate a borrower’s credibility or ability to repay the loan in the future as a safety measure exercised by the lender. It may range anywhere between 300 to 850 digits and demonstrates your financial well-being at the moment. A higher credit score endows you with a better possibility to receive a loan.

Risk of having a low credit score:

It may have been quite clear by now that having a low credit score turns you into a risk for the bank, insurer or any other lender. Therefore, it is advisable to always maintain a good financial history in order to be able to apply for a future investment or financing plan.

A lower credit score means your application for loan, a new credit card, mortgage plan or any other credit line can be rejected. It is also likely that if accepted, your financing application will still lead you to higher interest rate. It may also affect the term plan of your repayments.

This may seem strange but a number of rejected applications in the past also leads to lowering your credit score because any new lender would wish to inquire the reason behind the rejection. This is why, it is necessary to think well and conduct some research prior to applying for any loans to ensure that none of your loan application is rejected, not even once.

Kinds of credit score reports:

There are two kinds of credit score reports.

One of them is an active report of your credit history which through credit report agency’s database is visible to all potential credit providers and lenders and it determines your current and future eligibility for a loan application. This is your primary credit score.

Secondly, your new prospective lender will make an internal report, based on his own credit scoring criteria, individually assigned to your application.

Ways in which to boost your credit and make sure that your credit score stays up

  1. Timely payments:

Always make timely payments for your utility bills including water, electricity, phone and credit card etc. Some borrowers tend to make late payments, or only pay when necessary, after all it is a matter of minimal late fees, charged above the actual invoice amount.

But this is not advisable. If you are dealing with several expenses at the same time, it is better to have monthly or weekly instalment plans for paying, but a late payment shows badly on your credit score, so never go for it.

  1. Minimize credit card usage:

Keep a manageable number of credit cards. Also, minimize the usage limit and always try to go for a credit card that either does not charge you annual fees and provides you with a lower interest rate. Some credit cards also offer an initial period of no interest.

Whatever you opt for, just ensure that it does minimum damage to your credit score.

  1. Do not choose to go for several loan applications, simultaneously:

As stated above, too many loan applications spoil your credit score for any future financing plans. Therefore, never rush to apply for a loan unless you are certain that you will get it approved or be able to pay it back, timely. Do your research before making any moves.

  1. Avoid non-payment of any kind:

If you have failed to repay your previous financing plan, you are likely to get a rejection on any new application for the same because your credit file discloses it all.

  1. Avoid the red flag of identity fraud:

You may have had a change of name, location, phone number etc., while still on the term for the repayment of the previous financial plans. Any changes to your personal particulars must be reviewed and updated periodically. It is best to review on an annual basis whatever changes may have occurred to your personal circumstances and update them to avoid landing yourself into the bad books of the financial institutions.

Integrity, consistency in repayment and a constant vigilance of your personal credit score history can lead to improved possibilities of obtaining a loan in the future.

If you have any queries with regard to your current and future financing plans, it is always advisable to speak with a financial expert prior to making any decisions. Feel free to contact us.