The lender will first check your credit score to get approval for any formal credit. A fix your credit score is a 3 digit number that ranges between 300 and 850. The closer the credit score is to the 850 marks, the better your credit score is and vice versa.
A credit score tells the lender how likely are you to pay the borrowed debt on time. Any credit score above 700 is considered good, and above 800 is considered excellent.
The higher your credit score, the chances that any can you apply for in the future will be approved. For any person with a low credit score for some reason or the other, it is not easy to get approval for a loan or credit card. Hence, a person should always try to maintain a good credit score.
How to Fix Your Credit Score?
Having a low credit score does not mean the end of the world. You can still get approval for items to buy on credit or take a loan, and slowly with time, you can improve your credit score by making payments on time. The only disadvantage for a person with a poor credit score who is buying something on credit or taking a loan is that the interest rate on the loan or credit will be higher than that for a person who has a healthy credit score.
If you have a bad credit score and want to apply for a loan, getting prequalified is a good idea. The advantage of getting prequalification done before applying for a loan is that it will estimate the loan amount you are eligible for. This, in turn, will allow you to manage the amount of money you spend while shopping.
False myths state that prequalification will harm the enquirer’s credit score, although the loan doesn’t need to be approved even after prequalification of the credit score.
The decision of whether your loan will be approved or not depends on factors beyond the fix your credit score. Some of the factors that determine whether a loan is approved or not include the debt to income ratio, whether the previous credit amount has been repaid on time or not etc.
Another factor that might swing the approval of a loan in favour of the person with a poor credit score is the upturn in fixing your credit score when applying for the loan. If the upturn in a fix your credit score is a significant margin, the lender might change their decision to reject the loan application.
If still, you are unable to get approval for a loan, you can try other options such as:
- Taking a loan through another person’s account who has a healthy credit score by becoming an authorized user.
- Applying for a loan application by becoming a co-signer with another person who has a healthy credit score. The lender will consider both you and the person on whose account you have become the co-signer equally responsible for paying the debt on time.
- You can also open a secured account. By obtaining a secured credit card account, you can deposit the cash in the account and borrow money to a certain limit.
Steps to Improve your Credit Score
If you have a poor credit score and want to convert it into a healthy one, you can follow the steps mentioned below:
- Start making your credit payments on time if you are not doing it. Making late payments and defaulting on them negatively impacts your credit score.
- Your credit utilization ratio should be healthy. The credit utilization ratio is nothing but the amount of credit limit you have available and what share you are utilizing.
- Improve the current debt amount you have.
- The type of credit a customer takes also affects their credit score.
- Make only a certain number of hard inquiries about your credit score. If you make more hard inquiries about your credit score than necessary, it will negatively impact your credit score.
- Maintain a zero balance on your credit. This will help you improve your credit score.
- Keep the public records such as tax liens and bankruptcies clean.
- If you are still struggling to improve your credit score even after following the steps mentioned above, you can approach an approved credit counselling organization. The organization will advise you in various ways to improve your credit score.
- Another option to change your credit score from a poor one to a healthy one is to practice data consolidation of your credit. In this process, all the extra credits that you have been consolidated as one form of credit, and the interest rate is also lower than the others. This is a way of ensuring your credit score improves over time.
Before taking steps or approaching organizations, carefully verify the path you will tread to improve your credit score. Improving one’s credit score takes time and cannot be done instantly. Be wary of all those organizations that claim to improve your credit score in no time.
Before you take any step, check your credit score on CIBIL or Experian. Also, once you get the hang of the reasons as to why your credit score is low, you can work on negating those factors and improving your score, which is much better than swinging fruitlessly in the dark.
Keeping your credit score is important for taking any credit or loan in the future. Hence you should know about the actions that could damage or enhance it.