If you recently went to apply for a bank loan but got rejected, you might be wondering why. Well, the answer often lies in your credit score.
Your credit score often indicates your ability to pay back loans. It’s a three-digit summary of your entire credit history.
For example, in Australia, a score of 853 or above out of 1200 is considered excellent, while a score above 690 is considered good enough.
So, this article will walk you through the importance of a good credit score and how to improve yours!
1. Importance of a good credit score
As you might have already guessed, having a good credit score plays an important role in deciding whether or not you will get a bank loan in the future. But other than that, what are some advantages of having a good score? Let’s check them out!
- Lower rates of interest
One of the biggest advantages of a good credit score is that your bank will offer you loans or even credit cards at lower interest rates.
Even if you don’t get lower interest, they will definitely give you good discounts on the processing fee or the option to apply for a loan for high sums of money.
- More purchasing power
Another big pro of a great credit score is that you will be prequalified or preapproved for a loan amount when you plan on making a big purchase, such as buying a new car or a house.
Pre Approval will then give you the power to negotiate the price laid down by the seller and ask for discounts.
- Access to rewarding credit cards
If your credit score is good, you will also be able to enjoy various benefits set by the leading credit card companies in the market.
For example, you might win frequent cashback, travel points, or travel and lodging discounts when you sign up for a credit card with an associated bank.
- Higher credit limit
This is often the main reason people worldwide try to build a good credit score.
Since your credit score proves that you’re financially responsible and able to pay back loans properly, creditors will be willing to lend you more money.
Or you can even ask for a credit limit raise based on your debt-to-income ratio.
2. How to improve your credit score
If your credit score is low and you’re not able to avail of bank benefits like others, don’t worry! Here are some effective tips to make sure your score shoots up fast.
- Go through your credit reports.
Before taking any further steps, you must first figure out why your credit score is low. And the best way to do that is to check your credit reports every month.
Pull a copy of your monthly credit report from any credit bureau. See if there are any late payments or outstanding amounts in the report.
- Ask an expert for help.
If you cannot figure out how to improve your score, talking to a credit expert might help.
Especially if you’re planning to make a big purchase in the near future, you must speak with an expert from a reputable firm.
Research the firm and make sure they specialize in improving its clients’ credit scores to obtain better deals and real simple home loans.
- Aim for specific credit utilization.
One major reason why so many people have trouble with their credit scores is that they overspend their credit limit.
You must set a strict limit if you’re also a victim of this. Usually, 30% credit utilization is ideal.
This means you keep your total outstanding balance no more than 30% of your total credit limit each month.
- Keep your old accounts open.
One simple way of making a good impression on credit lenders is to keep your old accounts open and functional.
The age-of-credit part of your credit score determines how long you’ve had these accounts.
Even if you’re not using your old credit accounts, don’t close them. Instead, keep them open to gain more favor.
Over to you…
If you’re thinking of borrowing money, irrespective of the amount, it’s a good time to reflect on your credit score and see where you can improve.
Once you understand the five Cs of credit, credit history, capacity, collateral, capital, and conditions, your score will improve significantly.
