For some, their credit score does not seem important until they experienced being rejected when applying for loans. It is given that there are people who tend to be irresponsible with their expenses, delay their payments for bills, and even cancel credit cards with outstanding balances. As you forget about these financial responsibilities through the years, you might end up getting surprised with how it ruined your credit history that resulted in a poor credit score.
It is important that you maintain a good credit score. This is an important factor that tells the bank about your credibility in paying loans. It is among the factors considered when you are trying to apply for a credit line or loan. If ever you are planning to work within the financial industry, your potential employers may check your credit score as well. In case you want to improve your score, finding a licensed money lender can help you in the process.
What is a Credit Score and Why is it Important
Your credit score is the number used to indicate your tendencies of going into default if case they provide you a credit line. Lenders would pull all necessary information from financial institutions, including banks, to determine your score.
Keep in mind that your credit score is among the requirements needed to get a credit line or loan. Other factors that can also be considered are employment, annual salary, credit facilities, and even lawsuits.
A poor credit score can damage you more than you think as most businesses nowadays also ask for it. You might be surprised, but a licensed money lender can help you in slowly improving your score.
How a Poor Credit Score May Affect Your Life
Aside from not getting a loan, there are other ways that a poor credit score can affect your life. Some of these are:
1. Interest rates will be higher on your loans or credit cards
Since your score is an indication of your potential to default, lenders and creditors usually charge a higher interest rate. This is true for most lenders as they treat it as a payment for the risk of letting you borrow despite your score. Even a licensed money lender may give you this rate if your score is really bad.
2. Landlords not approving your rental application
You may be surprised by this, but there are property owners who check a potential tenant’s credit before the approval of their rental application. In case you find a property owner who still allows you to rent, he or she may ask for a higher security deposit.
3. Getting a mobile phone contract
As a requirement, telecommunication companies would usually check your score as their basis of knowing your trustworthiness in paying your bills. In case you don’t get an approval, you may have to choose a monthly contract or a prepaid phone.
4. Insurance premiums are higher
Insurance companies believe that lower credit score is linked to a policyholder’s higher claims. When getting an insurance policy, the company will usually check your score and charge higher premiums.
5. Starting a business is near impossible
For business startups, sometimes applying for business loans can help in funding the startup. With a poor credit history, there is a great chance that you won’t get approved for the loan. In case an institution allows you to borrow, they might give you a limit on the amount to lend you.
Having these possible problems in mind, you might want to start checking your credit score right now. If ever you’re provided with a poor score, there are things that you can do to improve it.
Ways to Improve Your Credit Score
For you to work on improving your credit score, you can resort to a few ways of getting a better score. Some of these are the following:
1. Pay bills and debts in a timely manner
Late payments on bills and loans may consider you as credit delinquent. To improve your score, make an effort to pay at least the minimum monthly payment. However, paying the bill within the month helps in preventing the balances and interest from increasing.
2. Lessen credit exposure and restrain using credit facilities
The more credit facilities that you have, the higher the credit exposure that you have. So, to prevent it from affecting your exposure, try to lessen your exposure and pay off one loan after another.
Aside from decreasing your credit exposure, you should try restraining yourself from using credit facilities. Since your credit
utilization pattern will be checked, you should try using such facilities less.
3. Limit your credit inquiries in a short span of time
In your search to get a loan or credit line, you may not notice that you’ve been making a lot of inquiries in a short span of time. Though it’s not your intention to look like you’re desperate to get one, financial institutions may assume that you are. This will make you look like you are taking several loans at once. Hence, making your credibility lower.
4. Borrow from a licensed money lender to establish credit activity
Though it may seem beneficial to avoid credit cards and loans, the lack of activity can also affect your score. Remember, no activity is equivalent to not having any score. However, a way to make a balanced credit activity, you can try borrowing from a licensed money lender. Borrow small amounts that you know you can pay off at the right time. This is better than not having any credit history.
In finding a licensed money lender, it is best that you make time and find the one that can accommodate your needs. Also, a licensed lender can also help you understand the risks in case you don’t pay on time.
Importance of Learning How to Handle Your Credit Score and History
Getting to know how your credit score can affect your life is one way of gaining financial literacy. Knowing the advantages and disadvantages of loans and credit cards will make it easier for you to establish a good credit history and avoid having problems in making financial decisions in the future.
It is highly recommended that you build credit history and use it to your advantage. As much as possible, avoid getting into a lot of irresponsible financial decisions. This will help you in establishing your credibility and avoid any issues when applying for loans or credit cards. Make an effort to learn how you can handle your finances properly to secure your financial stability.