There are a few things that are vital for loan approval. You will need to have a steady source of income and some good references, but the most important deciding factor will be your credit score. With a low credit score, you will still be able to get a loan, but you will be forced to pay a much higher interest rate. Having a good credit score will open up an entire new world of loan opportunities. For many people, improving their credit score is a huge challenge. There is not really a road map out there that tells you how to do this, and that is why Loans.net is offering these tips that will help you increase your credit score.
What is your credit score
Before we dive into ways to increase your credit score it is very important to know what it is. Your credit score is a three digit number. This number changes based on your credit history. This number is used to evaluate whether or not a bank or financial institution considers you to be trustworthy. If you have not paid your bills on time, or defaulted on loans, then your credit score will get lower. If you have always paid your bills on time, then your credit score will be higher. 550 or lower is considered to be a really bad credit score. The average credit score is right around 723. Anything above this number is considered to be an exceptional credit score. So how can you raise this number? Here are a few tips.
Don’t make late payments
One of the best ways to boost your credit score is to always make your payments on time. Every late payment just sets you back further and further. Even time you make a payment on time, it helps you get a little closer to that higher credit score.
Don’t max out all of your credit
It can be difficult not to want to spend every penny that you have on your credit card, but having every credit card maxed out will lower your credit score. A good rule of thumb is this. Only use around 35% or less of your credit. If you have three credit cards, and they each have a credit limit of $1000, then you total credit amount is $3000. Try to keep the total amount that you have spent on all three cards right at around $1050 or lower.
Don’t close your accounts
One common credit misconception is this. Get a credit card or a loan, max it out, pay it off, and then close it. This sounds like a great way to build credit, but it is not. Banks want to see history in terms of time. The longer you have a credit account in good standing with a bank, the better your credit score will be. A two year old credit account looks much better than one that was paid off in six months, and then closed.
Being responsible with your money and spending is the best way to keep your credit score high. These tips will also help you achieve a much higher credit score. You just need to follow through and put them into action!