A credit score is a basic metric which can come as a stumbling block if you want to apply for a loan. It is a significant factor in considering how much loan amount you are eligible for.
A good credit standing – meaning a score of about 800 is an indicator that you have a good relationship with the bank, lending firms and so you are more likely to be approved for a loan amount. Also, the interest and the term will be flexible enough for you.
On the contrary, if you have a low credit score, it eliminates your chances of scoring a loan, in case of an emergency.
Or you would be destined to pay huge interest and small-term loans. The reason for this is simple – when you have a good credit score, it means you have a history of completing your loans efficiently. And thus, you are a good customer of lending firms.
Hence, it is an excellent habit to take loans and repay them to build a relationship with the banks even when you don’t need it.
So eventually, when you need a loan, you have an established credit score which will help you in securing a significant amount and a flexible interest, upon negotiation.
The 3 Basic Steps
The easiest way to start your credit score journey is to have a credit card. You don’t need multiple of those – one would suffice.
And now, whatever shopping you do on your debit card, switch them to your credit cards. Make sure, you utilize about more than 25 per cent of your credit card limit. And now, make sure you pay the bills in full every month before the due date.
When you do this, you are establishing to the bank that you are taking a short-term loan and paying back in due time without any delay.
Do this for at least 2 years. This would happen automatically. Because it’s similar to shopping with your debit card. But the benefit is you are simultaneously building your credit score, getting points via shopping and getting extra benefits just because you have a credit card.
After 2 years, you can get a score of about 700 and above automatically. And if you keep these continuous, it will slowly rise. And boom, when you need to apply for any loan, you will have a credit score of 800 and above.
Avoid These Things
Don’t go into a frenzy if your credit score goes low. It will keep on changing, keep to the basics. Better, don’t check credit score, every now and then – once a year is good enough. Don’t pay to anyone who promises they have the trick to make your credit score good, they don’t have any trick.
If you already have a bad score, the first thing is to pay off all the debt you have, then keep a credit card and pay the amount in full every month. That’s it – slowly, your score will improve with this method.
Also, keep a savings and investment account. So that you don’t have to go to loan firms for a short amount every now and then. When you keep your finances neat and clean, you will avoid most of the problems which come with it.
And for rest of the things, keep things simple – get a paycheck, buy things on credit, pay in full, save some and invest some.
Boom, by doing this, you will be way ahead of most people. And also, you will end up with a good enough credit score.