Thinking of taking out a loan? A little credit TLC can get you the best bang for your buck!
TransUnion recently reported that the number of American consumers taking out unsecured personal loans had jumped nearly 30 percent, from 10.57 million in 2013 to 13.57 million in 2015. For those thinking of getting help with consolidating some bills or financing a major purchase, leverage the secret of savvy borrowers first: Paying advance attention to one’s credit score can make a major difference in getting the best interest rate and repayment terms.
How credit affects loans
Most lenders use a rating system from the Fair Isaac Corporation (FICO); the scale for the system ranges from 300 to 850. Here’s a general rule-of-thumb at how credit categories break down:
- 300 – 579: New or poor credit.
- 580 – 620: Fair credit.
- 621 – 740: Good credit.
- 741+: Excellent credit.
Contributing factors in determining a credit score include a person’s current debt, payment history and how long they have held any credit accounts. When they apply for a loan, the potential issuer uses a credit reporting agency to look up their credit score. The issuer does this in order to roughly determine how reliable the person will be in making payments on the loan. If that person’s credit falls into one of the lower categories listed above, they will likely have difficulty taking out a loan or will be offered a loan with less-than-favorable terms.
Get better terms
The good news is that there are steps people with a low credit score can take to repair their credit prior to taking out a loan. A higher credit score can help borrowers qualify for a lower loan rate and thus save hundreds – if not thousands – of dollars over the term of the loan.
Here are some common steps to take to quickly improve credit:
- Do not open any new credit cards. Each time you apply for a card, lenders may make a “hard” inquiry against your credit score. A high number of this type of inquiries indicates that you might be about to take out a lot of new debt, and will automatically decrease your credit score.
- Do not close any of your existing cards. While this may seem counterintuitive, it’s true: A large portion of your credit score is comprised of the amount of credit you have versus the amount you are using. The lower this percentage is, the better. So if you close a high-limit card on which you have a low balance, you may be inadvertently harming your score.
- Pay down your card balances. Refer to the previous point regarding credit utilization. Again, the more credit you have and the less of it you use, the better.
- Use “credit piggybacking.” This method of improving your credit score involves being added as an Authorized User onto another person’s high balance, low credit usage credit card.
- Check your credit report for errors. Get the annual free copy of your report, comb through it for errors and dispute any you find.
- Make your payments on time. Creditors like to see that you make your payments on a timely basis, and this counts as a big positive on your score.
Start improving today
If all of this sounds complicated and time-consuming, that is because it can be. But with BoostMyScore’s credit piggybacking services, you can effortlessly increase your credit score in 60 days or less – guaranteed. With our ten-year track record in helping folks increase their credit score, we are ideally situated to help you take a big step in the right direction. Our friendly, knowledgeable team is ready to help, so if you are ready to improve your credit score, contact us today.