Whether you like it or not, your credit rating is among the primary aspects that traditional lending institutions will consider when appraising your loan application request. Fortunately, the powers to control your credit score are very much within your hands.
Here are some behaviours that can lead to a bad credit score?
Falling into bad behaviours is easy. A past mistake becomes a present issue that continues to be part of your daily routine, and without even knowing, you get stuck in a furrow that is hard to escape. Bad credit behaviours will inflict mayhem in your credit rating and force you into bad debt. They will also cause other financial issues that intimidate your financial stability and goals. Let’s look at some of the bad behaviours you need to avoid.
1. Applying for too much credit within a short period
That careless strategy might work well on other aspects, but don’t try it when using for credit cards since it will damage your credit score. That is because any new credit card application will reflect on the credit report. Making numerous applications within a short time will imply that you are in a risky state money-wise or desperate for loans. That can hurt your credit rating. If traditional financial institutions had any arrangement of working with you, they will undeniably back off.
Way out: try to compare the alternatives at your disposal before making any application, whether you want a personal loan or credit card. Go for the one you badly need and will qualify for.
2. Lack of active lines of credit
Lacking any active line of credit means that your credit report will read as a blank page. For that reason, your credit rating may be lower. This is the disadvantage of using cash and debit cards. They don’t have any positive impact on your credit rating. For that reason, they can’t be used to win approval with lenders and financial institutions. Banks need hard evidence that you are a responsible debtor. So, if you don’t have an active line of credit, they may find it had to approve your loan.
Way out: register for at least one credit card and ensure you use it well. You can begin with a lower rate credit that has a lower limit. Then, set automatic payments and ensure all the credit card payments are made on time.
3. Maxing out your credit cards
The debt-to-credit ratio is one of the aspects that will go into computing your credit rating. That is the amount of credit you have consumed as a percentage of the cumulative credit limit. For instance, if you have a credit limit of $5000, you spend $1000, the debt-to-credit ratio is 20 per cent. A lower debt-to-credit ratio shows a positive image to lenders. It shows creditors that you are in control of your credit card. A higher debt-to-credit ratio tells creditors that you are a risky borrower.
Way out: you will need to make sure your debt-to-credit ratio is low. It is essential to keep a record of your spending so, make sure you set a budget. There are many handy online budgeting calculators that can help you keep track of your income and expenses.
4.Avoiding to correct mistakes
You must be pre-emptive when it comes to matters of credit score. If it is damaged by incorrect details or errors on the lender’s side. It is your responsibility to correct the mistakes.
For that reason, checking your credit score frequently is essential, particularly before you decide to apply for a loan. You may notice that there are some mistakes, like bills that were inaccurately recorded as unpaid or details that are not related to you. In that case, you need to contact your lenders and ensure they rectify the mistakes.
Way out: you are eligible for a free credit report copy every year. So, make sure you check them to stay updated.
4. Closing a line of credit with exceptional repayment record
If you have an inactive credit card account that you want to close, you may need to rethink it again. Provided you managed it well and remitted your repayments as required, it is guaranteeing your creditworthiness, even if you are not using it.
An excellent account assists you in maintaining your credit record in a commendable state. However, bear in mind that having several sources of credit or a high credit limit serves as a warning sign for creditors. That is because it will increase your capacity for debt. Therefore, having an inactive line of credit open might make it hard to apply for another credit card or loan.
Way out: unless you are required to pay charges on it, leaving the account open can be a good idea. However, if you plan to apply for a loan or new credit card in the future, you will need to reevaluate whether or not to deactivate the account.
Final word
Having a stellar credit score is essential. It will help you get a better deal for a loan at a lower interest rate. For those with bad credit score, there is hope, as they are numerous ways to repair a bad credit score. At the same time, there are loan options available for people with bad credit. Alternative lenders such as Bad Credit Loans offer a wide range of personal and business loans for bad credit borrowers. In saying so, you should not overlook any bad financial habits as they may continue to get worse over time.
Apply online or call 1300 123 328 to speak to a loan specialist.
