A credit score happens to be one of the most important things that financial institutes, banks, in particular, consider when granting one’s application for a loan. Be it the first mortgage or any subsequent loan, a credit score is checked to analyze a person’s creditworthiness or, in simple words, their ability to repay the loan.
The credit score holds even more important if you’re applying for second mortgages. If it isn’t up to the standard, you may end up getting your loan application rejected. Even if it is accepted, you will have to pay comparatively high interest.
On this note, let’s take a look at some of the most effective ways you can follow to improve your credit score:
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1. Always Pay Your Bill at the Right Time
Let’s start with the basics! Always pay your credit card bills at the right time. It is among the most important factors that are considered when determining a credit score.
Even if you are not concerned about your credit score, paying your bills is always a wise idea as you wouldn’t incur any interests. Furthermore, once delayed, it can become a habit of sorts. And ultimately, you will find yourself drowned in the debt that will be hard to get rid of.
The same goes for instalments for the loans you have taken. Always make sure to pay them before the due date to avoid late payment surcharges and a poor credit score.
2. Organize Your Loans/Credits
If you have taken multiple loans, chances are that things are going to get messy for you. It can be hard to manage them appropriately. There is always going to one or two payments getting delayed. And it is going to reflect in your credit score.
The best way to deal with such a situation is to organize your loans in such a way that each bill/instalment is paid before its due date. For this, make a schedule and stick to it. Allocate a chunk of your income for loan repayments and outstanding bills. The rest you should use for your routine income.
Try and get rid of the oldest loan/credit at first, particularly if it frequently gets overdue. However, if you’re managing it perfectly, it can show that you’re capable of handling multiple loans effectively.
3. Get a Consolidation Loan
In case if it is getting tougher to manage multiple loans, getting a consolidation loan could help. For the uninitiated, a debt consolidation loan is a new loan that is taken by a person to clear off their existing consumer debts and liabilities.
In this type of loan, multiple loans are combined into one debt that has a lower interest rate, and monthly payments are also lowered. The person who has obtained this loan has to make only one payment every month instead of depositing multiple amounts as instalments/bills.
4. Increase Your Credit Limit
If your credit card limits exceed every month and you end up paying a high amount as interest, a simple way to deal with this situation is to increase your credit limit. Many banks allow credit card holders to do so. However, you must take this step after thorough consideration and deliberation as it can tempt you to spend more and save less.
5. Automate Your Payments
Many people miss out on their payments simply because they had forgotten to do. This happens when a person has taken multiple loans or their schedule is very hectic. When it happens multiple times, it can adversely impact your credit score. To avoid landing in such an unfavourable situation, it’s better to automate your payments. The amount of each loan will be automatically deducted from your account, making it easier for you to manage debts.
There you have it! These are some of the most effective ways that can help to improve your credit score and brighten your chances of getting a loan application approved.