There was once a time where people could borrow money by seeing their bank managers in person. They would assess all applications and give you the chance to explain any irregularities. Nowadays, if you want to borrow money, a computer makes the decisions.
Bank managers cannot override any decisions. It all comes down to the state of your creditworthiness. If you don’t “score” well, you will get declined. The trouble is, nobody’s too sure about the scoring process. Each financial institution uses different ways of scoring their customers.
The good news is that you can make sure you have the best chance of “passing” most scoring tests. Here is what you need to know to improve your credit worthiness:
Don’t burden yourself with too much debt
One sure-fire way to get declined for future credit is by having a lot of debts! If you have several credit cards and loans, how will you pay for them if you lose your job?
If you can’t show that you’ll have no trouble handling your existing debt and some new loans, you’ll get a “no.”
Of course, you might be wondering how to reduce the amount of debt you’ve got? It turns out there are plenty of things you can do. For example, you could find ways to increase your income. By doing so, you’ll be able to pay off your debts quicker.
Another option is to merge your loans and credit cards into one loan. It’s a process known as debt consolidation. In essence, you are borrowing one large loan to pay off your other debts. The result means you pay less money each month and cut down on the interest paid.
Is that something that interests you? If so, it’s worth researching the best debt consolidation loans online. You should be able to find a provider that can meet your needs and help you better organize your finances.
Aside from that, make sure you don’t take on any new debt!
Top up your loan and card payments each month
With loans, you will have to make a set payment each month. And when you have credit card debt, you must make a “minimum” payment. In the latter’s case, that’s usually a percentage of your balance.
The trouble with the above scenario is that you aren’t improving your credit worthiness. Why? Because it shows you don’t have any spare cash to put towards clearing your debt sooner!
Even a few dollars extra each month towards your debt will go a long way. When a lender looks at your credit file, they can see how much you pay each month. Lenders want to make sure you can afford to take on any new debt. By paying more than what’s required, you’re also paying your debt off quicker.
Only borrow money if you need to do so
One of the problems with consumer spending is we tend to buy things we want, not need! As a result, we often borrow the money to get those must-have items.
Before you borrow any money, you must consider if you’ve got any other alternatives. For instance, you could save up money each month until you’ve got enough to buy the things you want. That way, you don’t need to take out any loans or use your credit cards.
Believe it or not, it’s possible to save up for all kinds of things like cars, computers and vacations. All it takes is planning and willpower to make it happen. Before you know it, you’ll have the money saved up to get the things you want. And the best bit? You won’t have to get into debt to achieve those goals!
Stop moving around so much
You might not think it, but one thing that can affect credit applications is where you live. Or, more to the point, the frequency that you move to new addresses.
It’s a good idea to stay at each place you live at for three or more years. That way, creditors can see that you are a “good” risk and won’t leave the country without paying your debts! People that live at one address for a long time are often a better credit risk for lenders.
The last thing you want to do is give creditors a reason to think you may default on loans or credit card payments.
Don’t spend more than 50% of your credit card limit
As strange as it may sound, it’s healthy to have some debt. That’s because you have a proven “track record” when it comes to borrowing money.
In general, it’s wise not to spend more than 50% of your credit card’s limit. First of all, the interest you have to pay on your balance will be lower than if you had “maxed out” your card. Second, you have an available balance should you need it for emergencies.
And, third, your payments each month will be low. This last point is important, as creditors want to make sure you can afford to take on new debt.
Pay your bills on time
It goes without saying that there are consequences to being a late-payer. If you have a habit of making loan or credit card payments late, those details will get recorded. And any future lender can see those details on your credit file.
If you can’t afford to make payments on your debts, it’s crucial that you assess the problem. You should then work with your creditors to come up with a solution. For example, some loan providers may offer to lower your interest rates. Others may organize a new loan with different terms so that your payments are lower.
Don’t just avoid the problem; it’ll only make matters worse for you.
Try to get credit cards with better interest rates
One smart way to lower your credit card debt is by applying for cards with better rates. You can then transfer the balance onto your new card and close the old account down.
Just make sure you don’t use the old credit card. Otherwise, you’ll end up with more debt!