- March 23, 2021
- Mark Elwes
A good credit score paves the way for financial stability
Table of Contents
To understand your credit score in detail, you must think like a bank and assume yourself as the customer. A credit limit is an amount you can borrow from a bank or any financial institution on a credit card.
The lenders or banks who lend money usually use a credit report or credit score. It is required to set the limit for your credit that they will offer to you.
Your credit limit can affect a lot many factors such as the amount to be borrowed, the interest rate on the amount, and the payback timeline.
Even though remotely, if you plan to borrow a loan or a credit, you need to maintain your credit score to be in the good books of the lenders.
You should maintain your credit score as a preventive score. There may be unpredictable situations in the future in terms of finances.
Hence, a credit score can help you come out of the financial mess with a little less hassle.
A bad credit score may lead to the following problems:
- Possible credit rejection: Due to a low credit score, there are chances that you may be rejected for any loan or credit.
These credits include personal loans, mortgages, car loans, and different types of student loans, credit cards, and many more.
- Rental application approval: Your past payment history forms an essential aspect of your credit score.
Since the credit score is an important factor considered by the lenders, they carry out checks to assess your payment history. These checks are done to ensure your timely rent payment.
- Security deposits: While moving into a new house, you have to make a security deposit that includes miscellaneous expenses such as water, gas, and electricity.
- Difficulty in obtaining a new cell phone contract: Various wireless providers also use your credit score. Although there are pre-paid plans that require no credit check, most providers use credit scores to evaluate your credibility.
- Employment background check: If you plan to shift your job, your credit score can plan an important role in getting a desirable job.
Few employers may check a limited version of your credit report to confirm your credibility as an individual. Credit score checking is a part of regular background screening.
They may want to check your ability to handle the finances well if you apply for a financial profile. Instead of a good credit score, their focus may be on the activities that led to a poor score, such as missed payments or late payments.
- Higher insurance premiums: Apart from your payment history, the credit report is formed based on your claim settlement history. If you want to buy a car, the car insurance company may check your credit report to assess the potential risk of submitting a claim.
Considering the above points, your credit score is an essential part of your financial profile. If you apply for a loan, bad credit history can be an obstacle to your loan approval.
You can apply for a loan with bad credit history as well. These loans require no guarantor and are offered by direct lenders. The following steps may help you to improve your credit score:
- Focus on visibility
If you look at yourself as a bank, will you give an invisible person credit or to whom you cannot track? A similar situation is with the banks.
If you are not on the electoral register or there are gaps in your residential record, the chances of you getting credit become bleak.
To have a good credit score and be in the good books of the lenders and the banks, it is essential to be on the electoral register and have continuous residential address history for 3 years. To know more about good credit scores, you check government websites.
- Self-history check
Self-introspection is the best form of a check. To keep track of your credit score, keep a regular check on your credit records.
Avoid having any incorrect data as several banks use this score to score you. Any false information could lead to a bad score or a decline in your credit request.
- Use your credit well
Catering to your essential expenditures can make a good credit score. You do not have to get into a debt hole to prove your worth.
Essential monthly expenditures such as paying your phone bills on time and regular credit card payments can also help you get good starting points. By just paying your bills on time, you can help yourself with future scores.
Stability is an essential factor in life and so in your finances. Having an old mobile number and an old bank account contribute majorly to your good credit score.
Many people often shift their jobs and change their homes. If you plan to borrow credit, you should think twice before moving to a new home or changing your current job.
It can be not easy, but sticking to one job is the right decision for you if credit weighs more in your life. Once you change your job or house, you are aged as less stable for a credit.
- Decent credit limit
Apply for a nominal credit limit. Whenever you are applying for credit, be careful about the limit that you apply. Your credit amount may impact your credit score in the long run. Irrespective of your application approval, it may affect your future credit score.
If you apply for a very high limit, you may seem desperate to get money and may appear financially stretched.
Applying for a decent amount may indicate your genuineness and will also increase the chances of your application approval.
- Avoid multiple applications:
In case of a missed payment, people may search for you. Also, applying for a loan with a bad credit history leads to a low score.
If you apply for a loan with a bad credit history, it can make you look in desperate need of finances. If you miss anything in terms of payments of these loans, it can lead to a credit search.
Missing a basic payment of utilities can contribute to your low scoring. If your details are being taken or constantly searched, it is probably leading to your scoring. A continuous search can make you look desperate and also lead to a bad score.
- Stay below the limit
It is always good to get more credit and stay below the limits than to have a lesser credit and run them up to the limit.
The latter situation may make you look in dire need of finances, which is not a very good situation considered by the lenders.
- Do not ask for more than your affordability
Having more credit than your requirement and your capacity to pay will lead to a negative image for your credit report. Banks always look up to debt-to-income ratios.
- Avoid missing payments
Do not miss your payments. Missing your payments by even one day can bring down your credit rating. It is always beneficial to make your payments on time.
- Don’t exceed the limit
Exceeding your financial limit may indicate your financial difficulties affecting your future applications.
- Borrow an amount relative to your salary
Once you borrow a credit amount, you must pay a specific amount monthly. Borrow an amount that you can pay without a miss from your monthly salary.
Borrowing an amount more than your salary and then unable to pay can get a black mark on your credit report. It can put you in trouble and eventually lead to a debt quagmire.
If you are up to the brim in debt, there are more chances of your application rejection.
- Do not use large proportions
Money management is an essential aspect of your financial cycle. Once you have received the credit, avoid using all the money at once.
Use small amounts of the credit in comparison to the total amount borrowed. Avoid using a significant share to showcase your efficient management skills.
- Maintain gaps in re-applying for credit
If you are being offered credit, do not ask for credit before 6 months of the previous credit as it can indicate financial difficulties.
You can wait to get your credit limit extended as it will avoid making any negative impact on your credit rating. If you have applied for a bad credit loan, then not ask for a loan soon. After 6 months duration, you can apply for a loan with a low credit history option. After a specific duration of your previous application, you can apply for CCJ loans as they require no guarantor. The direct lenders also provide this.
Mark Elwes is the Editor-in-Chief at Extramilefinance. He is a notable member of the content strategy team since his joining in 2017. Driven by his fondness for the finance industry, he has spent years gathering as much knowledge as possible about various financial products that include loans also. Previously, Mark worked as a senior journalist writer with experience in writing blogs and articles.