A credit score is simply a three-digit number.
It allows banks or financial institutions or other lenders to gauge the financial strength of their borrowers.
It also enables them to guess if the borrower has the ability to pay back the loan at its accrued interest within the stipulated time.
For example, if you have had a merchant cash advance bad credit, it will also reflect on your credit score.
Lenders have to deal with all kinds of clients. They use the credit score as a benchmark against which the creditworthiness of any client is assessed.
From the client’s perspective, the higher his or her credit score, the more chances he or she has of getting the required loan at the most favorable terms, conditions and rates.
Despite such obvious benefits of a high credit score, many people are unable to maintain them. Their score slides lower, and so do their chances of getting loans when they need them.
Some people think that there is simply no way of fixing a bad credit score. This may not be true. If you really want to improve your credit score, you may take a few steps listed in the below article. These steps will help you fix your credit score so that you don’t need to worry about securing loans again.
Effective Ways to Fix Your Credit Score
First of all, you should check your credit score. Just with your credit score, you will also obtain useful information regarding all those factors that are adversely affecting your credit score.
Once you are aware of all these factors, you will be able to comprehend their impact, and how you can manage these factors in order to improve your score in the months and years to come.
Time is very important in all this exercise because if you do take steps for improvement, they will not affect your score immediately.
Their impact will become evident only after your creditors start reporting them.
When it comes to credit score, some of the factors become very important, your bills payment history and previous credit history are typically very very important.
If you are able to take care of these two factors, you will have taken care of the better part of your credit score problem.
The following are some of the actions that you may take in order to improve your credit score.
1. Checking and Rectifying Errors in your Credit Report
Obtain your credit reports from all three bureaus. Check these reports thoroughly for any errors or inaccuracies.
Any error in the reports can lower your credit score considerably. Verify all the accounts given in the reports. They must be accurate.
There is a chance that the bureau made a mistake in fetching or presenting your data which had a bad effect on your credit score.
If you see any errors and/or omissions, you can simply write to the bureau with evidence of payments, and request them to rectify the report right away. However, before writing to the credit bureau, make sure that you are right in your assumptions. Your claim should also be backed by evidence from which the bureau will verify your claims. They will also check with the third party before making amendments to the report.
2. Timely Payment of All Bills
When a bank or a financial institution is reviewing our credit report, the first thing they look at is your payment habits.
Do you pay your bills on time? How good is your past payment history? Can you be relied upon to pay back the loan within the stipulated time?
The bank official has no way of knowing how you will act once you have obtained a loan from them, however, they can make a calculated guess after reviewing your past payment history.
You can take care of this important factor by simply paying all your bills on time each month.
If you have previously obtained a loan from a bank or a financial institution, make repayments every month before the due date.
If you are late in making these payments, you will be considered unreliable. This will affect your credit score in a bad way.
Use reminders on your smartphone so that when any kind of payment is due, you are notified immediately. Whether it is a credit card payment, loan installment, utility bills, auto loan, or any other kind of due payment, you must know about it beforehand so that you can make the payment. At the end of the month, make sure that you have no outstanding bills.
If you already have overdue payments, try your best to bring them back to the current status. If you are late in making a payment, it will affect our credit score, but it will blunt over time if you are making the next payments on time.
3. Paying Off Your Debts
There is a concept which is known as the credit utilization ratio.
It plays a very crucial role when it comes to calculating the credit score of an individual.
The lender will sum up all the balances on your credit cards, and divide that amount by the total limit allowed to you. It will allow them to arrive at your credit utilization ratio. This ratio denotes the credit that you are using each month on an average basis.
From the lenders’ perspective, this ratio should not exceed 30%. It lets the lender know that you keep within your limit every month, and know how to manage your loans in a better way. If you pay off all your debts and use your credit card only for essential sending, you will be able to achieve a lesser credit utilization ratio.
4. Managing Your Credit Accounts
People open credit accounts without thinking whether it will benefit them in the long run or not.
Open a new credit account only when you know that you cannot do without it. If you have so many credit accounts, you will be tempted to spend more and accumulate unnecessary debt which you will be unable to repay.
Moreover, if you have more credit accounts, your loan application will go through more scrutiny.
However, if you already have a few credit accounts and they are not charging you for them, don’t close these accounts.
Once you close these accounts, your utilization ratio will be charged with the decreased credit limit that will not be good for your score.
But, if you opt for opening new accounts for the same reason, you will have to go through more scrutiny.
The bigger the number of inquiries about your credit score, the more negative effect it will create.
The Final Word
If there is lots of negative information affecting your credit score due to overdue loan amounts or unpaid bills etc., make all these payments as soon as you can. However, keep in mind that making all those payments will not fix your credit score immediately.
The negative items on your credit report do not vanish as soon as you have made the payment.
In fact, these items would remain there for years. It takes time to bring improvement to your credit score.
There are complex mathematical calculations that finally arrive at your credit score. But these calculations are based on some factors that are discussed above.
Knowing these factors, and controlling them, is the key to improving your credit score, and maintaining it in the long run.
A good credit score can work wonders.
It will allow you to qualify for the best loan with the most reasonable interest rates, and other terms and conditions.
It will help you in getting the best apartments for rent, and lease the latest smartphone from any telecommunication company.
In other words, a good credit score is a key that can open numerous financial doors for you.