Every individual needs financial backup or support at the time of a financial crisis. The best way to meet such financial needs would be to borrow from financial institutions. However, every financial institution has a set of eligibility criteria. A credit score is one such criteria that every borrower needs to meet. A good score makes borrowing easy with smooth approval and disbursement. It is important for an individual to maintain a good score so that borrowing is possible at the time of financial emergencies.
There are various financial products that are available only when the credit score is excellent. To maintain a good credit score, one needs to avoid making mistakes. It will be helpful to meet the eligibility criteria with a good score. The eligibility criteria is not just limited to one credit score, but there are other things as well. However, a credit score is the foremost and most essential thing that is determined at the time of an instant personal loan. It is a quick way to ascertain the financial background and the credit health of an individual. Before you plan to borrow, understand what a credit score is and how to avoid the mistakes that lead to a low score.
What is a credit score?
A credit score is a three-digit number that represents the creditworthiness and credit condition of an individual. The financial health is determined by the credit score. This score represents all the past debt, payments, credit history, accounts, and credit background of an individual. A score helps the loan provider to understand the risk associated with the particular loan application.
If there are defaults and late delayed payments in the credit report of a borrower, he will surely get his application rejected. It is important to maintain good credit health by avoiding all the mistakes that can lead to a low score. A good score has many benefits and advantages. One can easily get hold of a good rate of interest and easy approval.
Mistakes to avoid for a good credit score
Delaying payment: Payments are very essential. It accounts for a good effect on your credit report. Any delayed payment will drop the score by some points. You would surely not want to lose out on points as it will be difficult to borrow and the improvement does not happen overnight. Make sure you prioritize your payments and make them on time. It will be very important for you to have a clean repayment record and history. Automate your payments if you feel you are losing payment dates because of your memory. Keep it on the right track and do not delay it.
Default: Defaulting is when an individual is unable to pay back a loan or make a payment. It is the worst scar after a bankruptcy on your credit report. You should not borrow when you are not able to pay it back. This will keep your credit score low for several years. Make sure you do not miss any payments or default on any loans. Borrow when you are capable of paying it back. Choose the right loan amount and for the right tenure.
Closing an account: If you are not using a credit account, you should not close it. This will cause a lot of hindrance to your credit score. The more credit age, the better your score will be. Make sure you keep your credit accounts open even when you do not use them.
Multiple new accounts: Opening too many credit accounts will not be a good sign. One should open a new account only when needed. New credit is not a good credit score report. Too many new credit accounts will lead to a low credit score. Make sure you open a credit account when needed.
Overdue: Bills generally have two options: full payment and minimum payment. Paying the minimum payment will be easy, but it is expensive and bad for your credit score in the long-run. When you pay a minimum bill amount, there will be various hefty charges and fees aligned with it. Also, an overdue outstanding balance on a credit card will lead to a low credit score. Make sure you do not pay the minimum amount and keep the overdue amount.
Too many credit cards: Do not keep applying for too many credit cards. It will not give you a good credit score. Too much need for credit within a small period of time is not a positive sign.
Do not keep applying for loans: every time you apply for a loan, there will be a hard enquiry on your credit score. This will keep decreasing your credit score. If you have a loan rejected, improve rather than apply for a new loan.
Check your credit score regularly to stay updated about your credit report. A good credit score will open up future borrowing opportunities. It is easy to borrow when you have an impressive credit history