How to Build Your Credit Score to Apply for Lån (Loans)
One way to know how healthy your finances are is to check your credit score. Lenders can take a look at this score and find out at once whether or not you are responsible for credit.
A good score can be the determining factor of whether you get a loan or not. Plus, low-interest rate loans are often available for people with excellent or good credit. So, when your score is high, you stand the chance of getting billig lån (cheap loans).
If you’ve checked your score and it isn’t looking so great, do not be discouraged. You can work towards improving it so that you can be eligible for the best loans in the market.
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Improving your score is not on the list of simplest things to do, yet with effort and patience, you can do it. All you have to do is follow the guidelines which will be shared in this article.
1. Review Your History
The first thing you need to do is know what has been working against you (or for you). So, you need to go through your history to figure this out. To do this, request for your credit report.
Next, review the report so that you can figure out what might be hurting or helping your score.
Factors that could be affecting your score include collections, missed or late payments, and having high balances on your credit card. If you notice these on your report, then that’s where the problem is coming from. Knowing the source of the problem will help you work specifically towards solving it.
2. Understand Bill Payments
Credit scores are determined by several factors including:
- Loan inquiries
- Credit usage
- Payment history
Of all these factors, payment history affects your score the most. So, to repair your score, you need to avoid making payments late at all times. The following tips can help you achieve this:
- Create a system to keep track of your monthly bills. This can either be done digitally or on paper
- Make automated payments for your bills via your bank
- Set alerts of your bill due dates. This way, you won’t forget when the bill is due
Another way of using your bills to work in your favor is making all (if all isn’t possible, then as many as you can) your bill payments with your card.
Typically, this strategy will only work if you pay your card balance fully every month so that interest won’t be attracted. Not only will this method help you grow your score, but it will also simplify how you pay your bills. You can watch this video to learn how to use credit cards to build your credit.
3. Consolidate Your Debts
If you have several outstanding debts, then you could consider consolidating them. How do you do this? You’d have to apply for and get a loan from your bank or any local bank around you. This loan will then be used to pay off your other loans.
After you do this, you’d be left with just one debt. Paying off just one loan means the interest rate will be lower. Hence, you’d be able to pay down the debt faster which would make the credit utilization ratio improve, and ultimately improve your score.
Consolidating several cards’ balances and then using a balance transfer card to pay them off is another strategy similar to this. Balance transfer cards often have an introductory period where your balance won’t attract any interest.
4. Work on Your Credit Utilization
Credit use is one of the factors we mentioned when we listed factors that have an impact on your score. To keep this in check, always ensure you pay the balance on your cards fully every month.
But this is most times not attainable, in which case, keeping your remaining balance at least 30 percent or even below of your entire credit limit should do the trick. From this point, you can keep working on it until it gets to 10 percent or even lesser.
Another strategy to use to achieve this is to increase the credit limit. This would, however, only work if your balance does not also increase when the limit is increased.
You can request the increase online for some card companies. All you’d be required to do is update your household annual income. Your limit increase request can be approved immediately sometimes.
If your card company doesn’t have this option online, then you can apply for the increase via a phone call.
5. Limit How Often Hard Inquiries are Done on Your History
Credit histories can be subjected to two kinds of inquiries namely soft inquiry and hard inquiry.
Soft inquiries usually include the following:
- An individual checking their history
- An individual permitting their employer to check their credit
- Loaners checking to see if an individual can get pre-approved loan offers
These inquiries usually do not affect the individual’s score in any way. Hard inquiries on the other hand can and often affect individuals’ scores negatively and this can reflect on their history for as long as 2 years. Visit https://www.thebalance.com/ to read up on the difference between these inquiries.
Hard inquiries are often carried out by lenders when they want to give an individual a loan. When this is done occasionally, it most likely won’t affect the score that much.
However, when it is done too often, your score could get damaged, and getting a loan could become harder. This is because financial institutions will assume that you are going through financial issues and that is why you are constantly borrowing.
Therefore, if you want to build your score, cut down on applying for credit cards and loans for the time being.
Building credit scores isn’t magic so it most likely won’t happen immediately. However, there is no set maximum or minimum period it’ll take. If your score is really bad, then it’ll probably take you longer to improve it. But you just have to be resilient and not give up just because you feel you aren’t making much progress.