In the world today, it is the desire of every person to have a good credit score. A good score is one step to better financial deals. It is interesting to note that major financial institutions consider many factors, but the most critical factor is how a potential client scores on their credit compliance. A good credit score is synonymous with better interests and, more importantly, the willingness by the financial institutions to trust a potential client with a loan.
Causes of poor credit score
There are tons of reasons for a poor credit score. In some instances, you as the client can contribute to poor ratings while others reasons are purely out of control. Some of the main reasons for poor ratings include the following.
Defaulting loans is the primary cause of low credit score. One of the main requirements any financial organization asks a potential client, willing to take a loan, is their consistency in paying loans. Reasons for default payments, in this case, are non-issues and if the credit score is low, chances of securing a loan are minimal. It is therefore vital to ensure that loans are always paid on time and in the correct agreed amount.
Late payments are also a reason for a low credit score. Being late on payments is also a significant reason why people have a low credit score. Although different countries have different criteria in calculating a credit score, the universal score attributes a 30% score on payments when constituting credit score. This percentage means, therefore, that paying any pending payments is not only crucial for a better rating, but it also contributes to almost a third of the total score.
Remedies for poor credit score
Regaining a good credit score takes time. While waiting for this time, it is essential to exploit other means such as personal loans for bad credit. This alternative gives loans to people with a bad score, but under certain conditions, which are attainable for any person with an active bank account and regular income.
In order to be consistent in your credit score, it is advisable to avoid all late payments. Late payments are one of your greatest enemies as far as credit score is concerned. There are different ways in ensuring that all the required payments are on time. One tip is by creating payment reminders, or on the other hand, ensuring that you create a tradition to pay all the necessary payments on time. Alternatively, it is important to reduce the amount you spend on credit cards. There are many ways to maintain a reasonable budget throughout the month, and such means may be explored by any person who is keen on building a high credit score.
In some cases, it is important to reduce the number of cards under your name. Different financial institutions have different criteria for closing cards, and it is important to follow the laid procedures.
How to pay loans faster and effectively
Paying debts is one of the most discussed money management issues in the world. First, it is essential to appreciate the fact that paying debts is not only crucial, but it is a civic duty. There are many approaches to paying debts. It is vital to understand that although paying debts is essential, not all strategies are effective. Economists term some repayment methods as stale. For a better repayment journey, the following two approaches are ideal and practical.
- Use of the snowball approach
This method of loan repayment is one of the simplest ways to make good progress on loan repayment without affecting your financial muscles. If you have many loans pending repayments, it is the essential first to make repayments on all the loans but with the lowest approved value. After making these loan repayments, it is advisable to settle the loan, which has the lowest principal amount left. This approach ensures that you make progress of repaying debts.
- Use the rate value to clear loans
Just like the other approach to loan repayment, it is important to make payments on all the available loans regardless of their value. After making these payments and fulfilling the agreed repayment agreement, it is vital to reduce the loans by interest rates. Loans have different rates, and it is more advisable in this case to repay the loans with a relatively higher price as opposed to the principal amount.