You know that credit score is important, but do you know why? If you have a high credit score, then you are a low-risk borrower, and it will be easier for you to get personal loans, credit cards, home loans, etc. On the other hand, a low credit score might make it challenging for you to secure a loan and if you do, it might be at a high-interest rate.
The fact is, if you are like most people, you wouldn’t think about your credit score unless you need to apply for a credit card. In other words, your credit score indicates how well you manage your debt, and it impacts everything – from the interest rate you pay to whether you can get a home loan to build your dream home. While it’s challenging to keep a tab on everything that can impact your credit score, there are a few things you can keep in mind to ensure you have a good credit foundation –
Do Not Miss Payments: One of the most obvious reasons for a low credit score is a missed or late payment. If you are more than 30 days late on a payment, you can get a lower score! Additionally, late payments can also result in late fee charges – adding to your financial burden.
Poor Loan Payment History: If you have taken loans previously and you have either missed payments or made partial payments, or made no payments at all to any of your debt (credit, personal loan, or home loan), it will lower your credit score. The higher the number of defaults, the lower your credit score!
Large Current Debt: Your current debt can also impact your credit score. For instance, if you have two or more loans currently, then it is likely that your credit score will be lower until you successfully manage to pay them off.
Credit Utilisation: If you are continuously maxing out your cards, it will imply that you are credit hungry which can also lower your credit score. So, make sure to keep your credit utilisation to a minimum. Furthermore, a large debt also questions your ability to pay it off comfortably. Experts say that your debt consumption should be approximately 30% of your income.
No Credit History: One of the biggest challenges in building a credit profile is the lack of one. And it isn’t easy to start! Often, lenders are less willing to take risks with first-time borrowers with no history of paying off debts. One of the options to start building your credit is to apply for an instant credit card. This is probably the easiest way for you to start building your credit score.
Withholding Rent: Whether you are living in your current rented apartment or not, if you miss rent for any reason, you can be reported to the debt collection agencies by your landlord. So, make sure you always pay your rent on time.
Unpaid Medical Bills: Unpaid bills from anywhere will impact your credit score. If you couldn’t pay an expensive medical bill, make sure you can consolidate your debt and pay it off in easy EMIs and not let it impact your credit score.
No one is immune to unexpected changes in financial status but it’s imperative to build a healthy relationship with your credit. Start from scratch and get a credit card to start building your credit score.