Largely, financial strength and credibility are determined by credit score. A poor credit score makes it challenging to take a loan or credit card, invest in financial instruments, and open a bank account. Most leading banks and financial institutions do a background check and take cognizance of credit rating before lending their services.
Importance of a good credit score
Reckless financial decisions reflect poorly on your credit report. Good credit helps get better rates on mortgages, vehicles, and loans. If you have a high credit rating, you are considered a low-risk borrower, whereas the ones with lower credit ratings are high-risk. Maintaining a good score improves credibility and provides better borrowing opportunities.
Do you have a debt that reflects poorly on your credit score? It is never too late to rectify it and build a strong credit rating. Here are a few ways to improve your score and avail uninterrupted financial services:
Review the credit report
Ignoring the credit report is one of the biggest mistakes. It is necessary to build a positive credit file as opening new accounts, taking mortgages or loans or credit cards, etc., are all reports to the credit bureaus. Most financial institutions and banks contact credit bureaus to know about a borrower’s track record. Hence, building a solid credit file is necessary for securing better loans and credit cards while improving the score.
Avoid applying for bankruptcy
If you have unsecured loans like credit card debt, payday loans, student loans, personal loans, etc., it is best to opt for filing a consumer proposal. It is a legal financial agreement between you and the lenders under the government’s debt settlement program that reduces the loan amount. In this case, the debtor must pay a part of their debt while a portion is written off. It is an effective way to prevent applying for bankruptcy.
Make payments on time
Whether you have a loan or credit card dues, make sure to pay them on time to maintain a good credit score. Missing payment reflects poorly on the credit report. On-time payments are a good way to rectify the score and improve the credit rating. You should set-up up automatic payments to avoid late fees. Do not take unnecessary loans or make unwanted purchases to prevent the drafting of the account.
Clear pending payments soon
It is okay to lag behind the bills and payments but do not make it a regular practice. Scrutinize all accounts and take into cognizance due accounts. If you have trouble paying the credit card debt, take advice to negotiate and lower the amount. As the past dues are cleared, the credit card score gradually improves.
Prevent unwanted purchases on credit card
People are tempted to purchase more, but the appetite for materialistic consumption does not decrease. The less debt you are to have if you have bad credit reports and clear the dues. Credit cards often tempt people to make mindless purchases, but it piles up debt requiring repayment with interest.
Limit frequent applications for loans or new account
Every time you apply for a new bank account or loan, there is an inquiry run on your credit history. A hard inquiry can hurt the credit report as it adds up. As there is more inquiry, if there is rejection, it further adds up in the credit bureau record proving to be detrimental to the credit score.
Summing up
Poor financial decisions, non-payments of loans, and lack of due clearance significantly impact the credit score. However, by following the above tips, you can scale up your credit score, improving your chances of getting better loans or mortgages.
