Many of us may have faced financial instability at some point in time. Loans are a good option when you are going through financial instability and avoid borrowing money from your friends or relatives.
Many factors contribute to the loan approval process such as credit history, monthly income, capacity to repay etc.
Many loans are rejected based on the bad credit score of individuals. If you have also been turned down for a loan because of your credit history, then this blog will help you to improve your credit score and be eligible for a loan:
What is a good credit score?
A credit score is simple indicators defining your creditworthiness and repayment capacity. There is no specific indicator of credit score that a lender uses while deciding your loan amount or approval. There are credit reference agencies (CRA) calculate your credit score and the risk you pose to lenders. These credit ratings are based on scales such as excellent, Good, Fair, Poor and Very Poor.
Despite a good credit rating, you may expect a different treatment from every lender. You may be rejected by one but accepted by another as every lender has his own measures for deciding. The following ways can be of your help to improve your credit score:
- Credit report check
To maintain a good credit score, ensure to check your credit report at least once a month to update and check whether the information entered is correct.
Keep a regular track of the information being added to your report. You should check the information that all the three agencies (TransUnion, Experian and Equifax) have about you.
You have the right to get your credit report for free from these agencies. Once you have checked the report, make sure to rectify all your information to avoid any adverse effect on your future credit applications.
- Vote registration
Voting is the right of every citizen, and it should be exercised. It is Make certain to register yourself on the electoral roll if you want to improve your credit score.
Your electoral roll has all your necessary information such as your address and other identity proofs. These documents are check by lenders to authenticate your address and other identity checks.
As per the Experian, the largest CRA, your voter registration can help you score as much as 50 points. Also, the time taken to register yourself is not more than 5 minutes. Hence, registering to vote is a good option to help yourself get the required finance.
- Rental payment
Make your rental payments count as they will facilitate in getting loans. As a tenant, you can make these regular payments count into your credit report via rent reporting platform as it will improve your credit score.
You should ask your landlord to report your rent under the free scheme called The Rental exchange that will ultimately reflect in your credit report.
You can also choose to self-report via CreditLadder or Canopy. Reporting your rental payments on time in your credit report will help to boost your credit score.
- Avoid “hard search”
Once you apply for credit, your lenders will perform a background check for your eligibility. Many lenders perform a “Hard credit” search that will leave impressions on your credit file and will be visible to others.
To avoid this, you can ask your lenders to perform a “soft search” rather than a hard search. This can let you know about the interest rate you will be getting and also will clarify rejection or acceptance of your application without being visible to others.
Due to the footprints of hard search, many lenders offer soft search on mortgages, loans and credit cards. At times, many lenders require no credit check depending upon the type of the loan. But mostly, lenders perform a rigorous credit check.
- Avoid immediate applications
Go slow and steady. If your credit application has been turned down recently, do not apply for another loan or credit card immediately.
Take some time in between. Applying immediately may not send the right picture, and it may suggest that you are in financial difficulty.
The tip is to take a gap of 6 months. If you apply for another credit card or loan in a gap of 6 months, it will help boost your credit score by 50 points.
Spreading out your credit card and loan applications by 12 months may have a positive impact on your credit report.
- Avoid low credit score associations
Your partner’s bad credit may affect your credit rating if you plan to take out a joint financial product with them. A financial association is when you open a joint account with them.
Since lenders weigh every factor while considering your application, this may harm your chances of approval as their financial situation could affect your ability to repay.
If you ever had a joint financial account with someone you are no longer associated with, it is better to disassociate yourself.
You can ask all the CRA’s to break your link with that person in their credit reports. Once it is done, it will not affect your credit situation in future.
- Do not miss the repayment
Repayment plays an essential aspect of maintaining a good credit score. If you repay your loan on time and within the credit limit, you are in the good books of CRA’s.
This will convince lenders for your repayment capacity. You should avoid missing a single loan or credit repayments to be eligible for credit again.
Lenders offer different loans such as personal loans, home loans etc. They also offer car loans with a tagline of “car finance guaranteed with no credit check”. But every loan has different repayments terms to cater to.
One common rule applicable to every loan is the timely repayment.