Low credit score is one of the biggest hindrances for people seeking loans for various reasons. Most banks and financial institutions tend to set a high score by the past financial history and dealings of the loan applicants before accepting or rejecting their application. There are various factors that influence your credit score with any incidents of loan default and delayed payments influencing your creditworthiness in a negative manner. This is because the score reflects your track record in terms of handling credit and a negative score is generally considered to be of your untrustworthiness in this respect. So what can you do to maximize the chances of your loan application getting accepted despite a low credit score? Discussed below are some measures you can follow to ensure the same.
1. Cut Down Credit Card Usage: Excessive usage of credit cards, when you are struggling with a low credit score is not advisable. In fact, you should make sure that your expenses remain below 40% of the maximum credit limit offered on the card. Applying for new credit is should also be avoided as it is considered to be indicative of your habit of poor financial planning. Moreover, every time you apply for new credit, your credit score undergoes a detailed scrutiny highlighting your history of poor credit loans. This tends to reflect badly on your creditworthiness and declines it even further.
2. Avoid Taking Shared Loans: Sometimes, your low credit score can result from the bad financial decisions made by other people. This is generally the case, when you choose to be a co-borrower or even the guarantor in a loan, not intended for your own use. In each case, you are left to shoulder the burden of making the loan repayments in case the primary beneficiary of the loan bunks out. In such cases, your credit score will take a direct hit if you are not able to pay back the full amount in pre-scheduled time.
3. Plan Credit Repayment Wisely: Be sure to plan your credit repayment in a prudent manner, even if it means stretching the repayment schedule a bit longer. You should make sure the total amount you need to pay as EMI’s is no more than 50% of your take home salary. You should also consider the fact that any increase in the interest rates during the duration of repayment might also lead to an increase in the EMI amount. This can in turn land you in major financial crisis and even cause you to miss out on payments leading to even lower credit score.
4. Create A Good Mix Of Credit: Having a healthy mix of credit not only helps in improving your overall credit score but might also make you liable for cash advance loans. To ensure the same, you should choose to apply for both secured and unsecured loans rather than seeking credit only within a single category. Also make sure that your credit score is accurate and reflects the payments that might have been made later than the specified date. Getting your credit report checked for any discrepancies before any upcoming scrutinization of the same can help you save a lot of trouble.
5. Exploit Your Old Accounts: If you have any long-running accounts or even credit cards with a good credit history, you can exploit them to improve your creditworthiness. These accounts can help prove your trustworthiness about being able to pay back your debts on time and having a good financial track record. Even if you are not applying for new credit, keeping these old accounts open can come in handy in the future. So be sure to think twice before you decide to close-down your long running account just randomly.
6. Avoid Missing Out On Bill Payments: When your credit score is poor, you need to adhere to the various payment schedules in the strictest terms. Missing out on bill payments even by a single day can reflect extremely badly on your creditworthiness. Even if you can make the entire payment, paying the maximum amount possible is better than not making any payment at all. Not making the payments also leaves you handling the additional burden of higher interest on the unpaid amount. Moreover, it makes you look credit-hungry which is definitely not the impression you want to make on the lenders.
7. Make Necessary Lifestyle Changes: There are various reasons that might cause your credit score to take a downward turn. Take time to access these reasons and make the necessary lifestyle changes to rectify the same. Whether it involves controlling your spendthrift lifestyle or investing in an insurance plan, you should take remedial action to prevent your credit score from plummeting further. Also make sure that you spend ample time and effort in creating a budget and adhering strictly to it. You should also consider informing your lenders about any financial difficulties you might be facing to learn the possibly of revised payment date.