Banks do not give a loan if you have a poor credit rating. Therefore, it is important to make sure that you improve credit score and be eligible for all loans. Irrespective of how rich or poor you are, anyone can have a requirement for a loan. Types of loan do not matter, you need a good credit history. For example, you want to take a small business loan. These loans come with both secured and no-secured options. But banks still check credit scores. From taking out a home loan to a car loan application, credit score is important.
In this article we will go step by step to build a credit score from the very basics. Then we will talk about the actions that you need if your credit score report shows negative accounts. We will also understand the basics of loan defaults.
Credit Rating Meaning
The meaning of credit rating is hidden inside the word itself. Credit rating is a parameter that financial institutions use to check your eligibility for taking a loan. There are credit rating agencies across the world. They rate your performance based on your debt paying, and credit usage history. For example: you take a credit card from a bank and end up in credit card default. They will give you negative ratings or points. If you pay bills on time, they will give you a positive rating. As a result, the collective points history of all the credit cards and loans will become your credit score. Next time when you apply for loans, the creditor will be aware about your credit history.
No matter how Rich or Poor you are, Loan is a Reality
The process to Improve Credit Score
Life is complicated and fun at the same time. This does not matter how rich or poor you are. The requirement for a loan can come anytime. But if you are not ready, you may get disappointed due to loan rejection. In this article, we are not only talking about improving the credit score, but also to build credit history. Therefore, make sure you are following these credit score improvement techniques to be eligible for all types of loans.
Start Early and Improve Credit Score
This is the first step that everyone needs to understand as a student. When you are at an early age with no or less responsibilities is the best time to start. Your credit score will grow when you take a credit. Take some credit even if you do not need it. Your parents can give a guarantee to the bank and you can start building the credit score.
Take a Credit Card
As I said, the credit score has a range. If you do not have any kinds of loans then you are at the bottom level. You can start with taking a credit card. Initially, banks will offer you a low limit card. With time, when you make timely payments, banks increase credit limits. Credit cards are a great way to improve credit score. You can increase your credit card limit after some time. Make sure you are using it and making all the payments on time for making a good credit rating. In addition, credit cards offer great convenience if you want to make payment online. Improving credit score is a slow process so you need to start early.
Maintaining a good credit score from an early age makes you eligible for other loans. For example, if you want to take out student loans a better credit score will help. You may need a loan for a car, home loan or a small business loan in future. Poor credit rating is among the top reasons for loan rejections.
Get a personal loan
This is the next step towards making it a little bigger. You already have a credit card and the credit rating is growing. Now the next step is to take a personal loan. At least take a small amount with a long duration to make the average better. Taking a personal loan and paying it on time will further increase the credit score. Make sure you are making 100 percent of the payments on time if you are looking forward to getting a bigger loan in future.
Take a few more credit cards
I know it sounds a little weird but I am not asking you to increase your monthly expenditure. Keep spending in limit but use a small amount of purchase with each card. And do not forget to pay on time.
Why do I need so many credit cards?
You do not need these many credit cards but we are preparing for future loans. With time your payment average will be so high that even if you miss payments in the long run will not impact your credit score much. Using multiple credit cards is a good thing for your credit rating. Additionally, in case of an emergency you will already have a high credit limit to spend.
Apply for a Home Loan
Home loan is a secured loan but the interest rates are low. If you compare home loan with personal loan the difference is good. Additionally, you will have an asset and the value will keep on growing. You are buying a house as an investment then you can expect good returns. Additionally, you can also give a house for rent and get some money. This is an ideal condition for taking a home loan.
Improve Credit Score to live a Good life
If you follow a systematic approach for improving credit score, you will be eligible for all the loans. Additionally, saving money takes a long time. For example, you want to purchase a car that is out of budget at present. You can start saving money for sure but by the time you have enough money, car prices will increase. Therefore, loans are a great way to fulfill our aspirations.
Improving credit score also plays an important role in increasing wealth. You can also buy a lot of assets at current prices and make profit. For example you want to buy a house but the money is not enough. If you have a good credit score, you can take out a home loan and shift to the new house. In the longer run when the prices go up, you can sell the house and take all your money back. Off course with some profit.
What kind of loans are most common among the public?
Every person has a unique requirement for taking loans. Due to this you need to look at the common reasons for taking loans. But we can surely create a list of loans that a person normally takes during his or her life.
Student loan
A loan for education or student loans is one of the first loans a person takes. Education expenses are high and not everyone can fund this. Therefore, many students in the USA apply for federal student loans for education. This can also be your first step for improving credit score.
Car Loan
Buying a car does not only mean moving from point A to point B. It is related to our aspirations and desires. There are Cars, SUVs, trucks and Dream cars. There are many reasons for taking a car loan. You can take out an auto loan for any of them.
Home Loan
This is also one of the most common loans people take. Along with the requirement to improve credit score a better house also represents a better lifestyle. Taking out a home loan fulfills this dream of living in a good house early.
Personal Loan
As the name suggests, a personal loan is for personal reasons. From funding child education to spending in marriage you know the reason. The cause is also different for everyone in most cases.
Small Business Loans
This helps when you want to become your own boss and do not have enough money to start. A business loan not only improves credit score, but also gives you instant money to start business or expand business. A small business loan is among the first sources of money to start a business.
Loan Against Property
When you want a big loan but the credit score is not good, property loan comes into picture. In case of loan against property, banks mortgage your property and give you money. If you fail to repay the loan, they have the right to sell the property.
Gold Loan
When nothing works out, a gold loan is the best option in case of an emergency. Iit comes with fast loan processing. You can get a gold loan in less than 30 minutes.
How to Increase Credit Card Limit?
First of all, you can increase your credit limit when you improve your credit score. If you have a good credit score then after some time of usage, banks increase the credit limit automatically. Make sure you are making all credit card payments on time. You can also request the bank to increase the limit.
What is a Small Business Loan?
As the name suggests, small business loans are linked with starting a business. A business needs money at every stage of operation. If you are running a business then you are dealing with many issues at one time. Capital is the main fuel of business. As soon as your money dries up you can approach banks for a business loan. Existing businesses also demand loans for small businesses as working capital.
Can I take a personal loan if I do not have a credit rating?
Credit score ranges between 300 to 900. If you do not have a credit card or a loan in the past you should be at the lowest credit score. Therefore, first of all, if you have a regular income, start with taking a credit card. With your timely payments, the credit score will improve and you can apply for a personal loan as well.
What to do if your lender rejects your loan application?
The reasons for loan rejection change with everyone. Therefore, the first thing you need to do is identify the main reason for your loan application rejection.
If you have a bad credit rating then the best thing is to wait for some time. Because a loan rejection also reduces rating further. Keep working on improving the score.
In case a mortgage is rejected due to some documents related issues. You can easily fix and re apply for the loan.
I need a loan but my credit is bad. What options do I have to take a personal loan?
If you are in an urgent need for a loan then try to apply for a secured loan. This will not only take care of your immediate requirements but also improve the credit score.