What is a credit score and how to increase a low credit score?
What is the first thing that a loan provider considers before approving your application? It is none other than credit scores. It is a 3-digit numeral that credit institutions like Experian provide to an individual. You may include a credit score of better than one.
The rating you get depends on the existing debts, credit history years, employment history, and other aspects. Whether you want to buy a home or a motorcar, having a satisfactory credit score is a must. It helps you achieve your life goals in a timely. The blog is a brief guide on credit scores. It lists the concept, why it matters, and how to improve one to improve your life prospects.
How would you define credit score in simple terms?
A credit score is a 3-digit number that an individual gets from a credit agency. There are three prior credit institutions in the country: Experian, Equifax, and Transunion. Each collects the information from public records, direct lenders, landlords, and other benefits. It helps them analyse your affordability and accordingly rate your financial profile.
This numeral demonstrates how likely you are to repay the dues. A higher credit score reveals that you may get affordable loans, mortgages, or even credit cards.
Your credit score does not remain the same. It changes from time to time. For example- if you repay the pending credit card bill or utilities., it improves. Alternatively, defaulting on the loan or non-repayment may drop your credit score.
Whenever you apply for a loan, you undergo a basic credit screening. The loan providers analyse one to calculate your affordability on the loan. It does not affect the credit score initially.
What aspects may decrease your credit rating?
Yes, certain aspects may affect credit scores. Thus, you should be conscious about maintaining your credit history. Here are some factors that may affect your credit score:
- A long unemployment phase may drop your credit rating
- Issues like CCJ and bankruptcy may affect the credit score
- Pending rent payments, credit card dues, and other payments affect the rating
- Inconsistent income and short credit length affect credit rating
- Not- paying the dues and payments timely drops the credit score
- Unemployment phase decreases your credit repayment potential
- Not Having the best credit mix (payday loans, credit cards, mortgage, student loans) hampers credit rating
- Inconsistent rental history affects your credit rating
How does a poor credit rating affect lifestyle choices?
A poor credit score (561-720) affects major life decisions. You may face difficulties in qualifying for mortgages, credit cards, rent, etc. It is because the loan providers perceive you as a risky borrower. Even if you qualify, you get competitive or high interest rates. It may mean paying more on credit cards and loans. Here are life other aspects that poor credit may affect:
- Employment and job possibilities
Getting a job with a pending or unreliable credit history is challenging. Every employer wants the candidate to have a better credit history. It reveals his responsible take on finances. It also showcases the clarity of financial goals. A poorly managed credit profile affects your opportunity to get promising job offers. Thus, cleanse your credit profile before applying.
Check poor credit loans and repay the pending dues. You may get it if you have verified income. If not all, settle the high-interest ones. It may have a better impression on the employer. You can repay the dues later in installments.
2) Face difficulty in renting
No landlord would want the potential renter to skip payments. Thus, they analyse the renter’s previous credit management record before renting. It helps them understand whether you were regular on rental payments. Poor credit rating may lead to instant turndown. It may imply losing on cheaper renting options.
- The lower credit limit on cards
Credit cards come with the utilization limit that the company provides. Having access to better credit limits helps you finance your needs without worries. Alternatively, poor credit scores restrict the amount limit. You cannot request further. It puts your dreams on a halt.
What could you do to repair the poor credit rating?
Thus, you can see the ill effects of bearing an imperfect credit score. Nonetheless, you can enhance the problem by taking the following steps:
1. Pay minimum/full payment
Identify your current liabilities and how much you can repay. Begin by settling high-interest debts like credit cards first. If you cannot pay in full, negotiate an affordable amount. It is more useful than not spending at all. It will bring down your liabilities and improve your credit rating.
2. Improve skills and fetch high income
Yes, improving skills as a student is important to get a higher package. Income runs directly proportional to the credit score. The higher the earnings, the more increased the credit score. Thus, identify the right opportunity and maintain a healthy employment tenure.
3. Include a diverse credit mix
As mentioned above, not having a diverse credit mix may affect the length of the credit history. It leads to immediate loan rejection. Thus, don’t just rely on credit cards for urgent or big-ticket purchases. Instead, check an affordable, unsecured loan for a bad credit score. It is a more inexpensive alternative option to credit cards. Moreover, unlike credit cards, the loan helps you build a positive credit history. These personal loans help repair the credit score and ensure a stronger one.
You may spot competitive rates on the loan, but it is still less than the credit card. You can decrease the interest liabilities by providing the best and verified income, a guarantor, or borrowing a lesser amount. Apart from this, we have the best mix of student loans, payday loans, mortgages, credit cards, and overdrafts.
4. Keep a tab on spending
Avoid spending more on unnecessary aspects like dining out, watching movies, or going to weekend gateways. It affects your budget and credit score. Instead, make a list of wants and needs. Stick by the needs before meeting your wants. For example- resist the urge to book that dress and meet important payments like credit card bills.
- Update your financial records
It is important to maintain an updated track record of your finances. Check the credit report for pending bills, information, and other aspects. Report the paid debts if it still reveals on your profile. Update the contact number, residential address, email ID, etc. Check the electoral roll and update it, too. Analyse the passports or visas of an international student. Updating such aspects improves your credit rating.
Bottom line
A credit score is a 3-digit number that credit agencies provide to an individual. It helps define how reliable the person is for loan affordability purposes. Individuals with good credit scores get instant approval and better interest rates. You can improve the credit rating by limiting debt count, improving income, and updating the information. It helps you achieve your life goals without exceeding the timeline.
