A good credit score is the most critical factor when issuing a loan. It shows how responsible you are for repaying your loans. The better your credit score, the easier it is to get your loan sanctioned.
When you apply for a personal loan with bad credit, the lender falls into a risky position. A personal loan does not leave them with collateral to fall back on. Hence, they reject people with poor credit scores.
To help you with this, the article highlights the factors that affect credit scores and a few ways to improve them. Keep reading!
Factors That Affect The Credit Score
There are multiple factors based on which your credit score falls or improves. While you may be unaware of it, your activities with a credit card have a lot to do with this.
Following is a list of factors that affect your credit score negatively and reduce your chance of getting a loan.
- Not checking regularly: One of the most common mistakes people make is failing to check their credit scores regularly. By doing this, you miss out on the factors, and your scores can decrease drastically. Make sure to check it at least twice a year.
- Delaying repayment: While using a credit card, it is essential to maintain discipline in repaying the bills. A delay in payment can impact credit scores hugely. Try paying the entire pending amount instead of the minimum balance to improve your score.
- Maintaining credit utilization: Using 15-30% of your credit card limit will likely improve your credit score. Many people utilise 70-80% of their credit card limit, which works against them.
- Maintaining credit history: It is essential to keep your credit cards active to have a hold over the card’s credit history. By closing it, you lose all your credit history, which affects your credit score.
- Failing to check credit reports: Credit reports compile data revealing a lot about your activities. Reviewing your credit report from time to time allows you to identify which areas you might be lagging in, and you can make changes accordingly.
Now that these factors are known, it is essential to know the tricks to improve your credit score. Doing this means you don’t have to struggle to apply for a personal loan with bad credit.
Ways to Improve Your Credit Score
If you cannot apply for a personal loan because of a bad credit score, this section might help you improve it. Below are some steps you can follow and get yourself back on track.
- Retrieve your credit report from an authorized source to review your activity.
- Improve and change the credit card habit by optimizing as per your reports.
- Clear the pending payment to avoid further delay.
- Don’t go for multiple unsecured loans. Instead, have a mix of secured and unsecured loans.
- Maintain a low credit utilization ratio.
- Increase the credit limit to ensure you utilize the required limit without compromising on the requirements.
Therefore, it is evident that using credit cards regularly does not improve credit scores. It depends on many other factors. It can take a while before you see a significant change in your score.
Hence, you can significantly improve your credit scores by optimising your usage and maintaining discipline in repaying the due amount. This will make it easy to apply for a personal loan in desperate times.