Did your neighbor just get his car loan approved while you are still looking for one? Are you wondering why you are not getting the car loan despite trying for months? Well, it has to do with your credit score.
If your credit score is not good, then there is a high chance that the car loan you applied for might never get approved. A good credit score not only gets you a loan at a lower interest rate but provides other benefits as well, like better negotiating power and better insurance rates.
Improve Your Credit Score
A credit score tells about your financial reputation. So, you need to work on improving your credit score. You should aim for getting an excellent credit score which is 800 to 850 on a scale of 1000. However, most people can easily improve their credit score to the ‘very good’ status which is 740 to 799. A score of 600 to 739 is considered to be ‘good’, 580 to 669 is ‘fair’, and a score of 300 to 579 is ‘poor’. Here are some effective ways to improve your credit score.
Make Full Payments On Time
As your payment history contributes to a large chunk of your credit score, missing payments can affect your credit score terribly. You should make the habit of paying off your credit card balance in full on time or at least, make regular monthly payments. You can set up automatic payments with minimum amount so that you don’t miss the payments.
Use The Card Often
Don’t feel guilty to use your credit card often as it helps to boost your credit score. Try to do your regular grocery shopping using a credit card instead of cash and then pay back the amount right away. That way you will be using your card regularly and also won’t miss out on the payments. This tells that you are making full use of your credit card and it increases the chance of getting a higher credit limit in the future. About 15% of the credit score depends on how active you are with the card.
Have Low Credit Utilization
You should never use up your entire credit limit. You should try to keep your credit utilization to 30% or less. If you pay off your credit card balances every month then you can lower your credit utilization and thus improve your credit score.
Apply For Specific Credit Cards To Improve Your Score
You need different credit scores to apply for different credit cards. Though most credit cards ask for good credit scores, some cards accept fair or poor credit scores as well. These cards are unsecured, have high fees, and have fewer rewards, but you can use them to improve your credit score and later apply for a better credit card.
Get A Higher Credit Limit
Getting a higher credit limit helps you to apply for a mortgage or car loan. But you need to make sure that your credit utilization ratio is low so that you don’t use up all your money. This will show that you are in a stable financial condition and so lenders will.
Monitor Your Credit History
You should monitor your credit history regularly to know where you stand. You can get a free credit report from Experian, for example, and look at the various features of your report like credit balance, payments, debt, and others. This way you can spot any suspicious transaction or error that might be lowering your credit score. You will also know where you are falling behind so that you can take steps to improve your score.
Avoid Making Too Many Credit Card Applications
If you apply to too many credit cards, it will lower your credit score. It is a red flag to the lenders as they will think that you might be in financial problem for which you are applying to multiple credit cards.
Pay Off The Due Accounts
If you have failed to pay bills or credit card payments on time, then try to catch up on the payments; otherwise, the late payment status will be in your credit report for up to seven years. You may contact a credit counselor to make a debt management plan for you and also lower the interest rate of your loans.
Don’t Close Old Accounts
Your credit age is an important factor in your credit score. So, don’t close your old accounts. If you close a credit card while you still have a balance on other cards, your credit score will decrease.
Consolidate Your Debts
If you have multiple debts then consider consolidating them. You can take out a debt consolidation loan from the bank so you will need to deal with one payment each month and have a lower interest rate too. This way you can pay off your debts faster and improve.
Have A Good Credit Mix
If you have only credit cards, then get a low-interest loan. On the other hand, if you have only loans then apply for a credit card. If you improve your credit mix, your overall credit utilization will be low and so your credit score will improve.
Your credit score won’t boost overnight. You must wait as it depends on several factors. The experts use factors to calculate your credit score. These include payment history ((35%), amount due (30), credit history period (15%), new credit (10%), and credit mix (10%). Try to get a high score on these individual factors to improve your credit score.