August 26th, 2019 | Updated on June 3rd, 2021
There is a trick to building a high credit score. Since the credit score is a metric of your ability to pay off debts, you can always build your credit by taking out a line of credit that you can pay off.
There are several ways of achieving this. In the following post, we have gone over all the tips and tricks to build up a good credit score and rating using personal loan options.
Credit cards offer a flexible and easy access option when you are looking to take out a line of credit that you can pay off smoothly. But keep in mind that these have quite high-interest rates.
Then there are personal loan options as well. For all the additional info, read on to know more. Follow our simple rules to ensure you build your credit score rather than hurting it in the long run.
Shopping Around Is A Great Idea
When you are looking for personal loans, it is imperative to shop around for the best rates and the deals.
If you are in the habit of jumping your gun at the first chance you get, then keep in mind that the first few offers won’t be beneficial even if they seem appealing.
Take good care of your wallet when you are searching for the right personal loan. Look at different lenders concerning the terms, fees, and interest rates on offer.
The math is pretty simple; the lower the costs, the more you save.
Avoid Going Overboard With Loans
It doesn’t necessarily mean that the more lenders you apply with for a loan, the better are the chances of achieving a healthy credit score quickly. If truth be told, it might end up causing you more harm than good.
Every loan has an immediate negative impact on the credit score. So keep the loan applications to a bare minimum and make sure you pay-off one before opening the second line of credit.
Reviewing The Terms Of The Agreement
After you have applied for the loan and have gotten it approved, you need to finalize the deal. But there are a few critical considerations before you sign on the dotted line.
You need to read the terms of the agreement carefully to make sure of the clauses and stipulations in place. Keep in mind that there can be penalty clauses in case you miss making your payments on time. This might even increase interest rates.
Therefore, you must make sure you are aware of the terms and conditions before finalizing the deal.
Borrow Within Your Limits
If you are looking to borrow through personal loans and various other forms of credit, then make sure that you borrow within your limits.
If you are unable to pay off the debt in time, then it beats the purpose of borrowing in the first place. So even if you qualify for a higher loan amount, keep in mind that you are better off with a smaller amount.
This will make sure you establish a clean payment history without falling into the “debt-trap.”
Make The Payments In Time
Late payments have severe consequences on your credit history and the final score. To maintain a perfect track record as far as the payment history is concerned. Keep in mind to never miss even a single payment date.
In case of any unforeseen circumstances you are unable to make the payment on time, make sure your lender is aware of your plight to minimize the damage on your credit report.
Avoid Multiple Lines Of Credit
The more you make the payments for the existing loan, the better your credit score gets. This means you automatically become eligible for newer and betters lines of credit.
But it is essential to avoid temptation and stay away from multiple lines of credit. The more debt lines you have open, the higher is the credit utilization ratio.
This means you have a high debt-to-credit metric, which in the long run is detrimental to the overall credit score.
We recommend maintaining and practicing a few good credit habits to counteract the adverse effects of taking out a line of credit.
Practice Good Credit Habits
Here is all that you need to do to build up your credit score.
1. For The FICO Score
For the FICO score, you need at the least one account that is active for six months or longer.
Additionally, you also need one creditor reporting your account activity to the credit bureaus through an open line of credit.
2. Make All Your Payments On Time
Make all your debt payments on time and not just for the credit accounts but also the utility bills that include the power, gas, and groceries to stop hurting your credit score.
3.Minimize Credit Utilization
Plastic money has increased the spending power of consumers all around the world. This is why it is imperative to practice a bit of self-censorship while purchasing using credit cards.
Keep the credit utilization below 30% for all your lines of credit.
4.Multiple Credit Options
If you have multiple credit options, it is essential to space out the applications for the loan evenly.
The more you apply, the worse is the hit on the credit score even if you keep making payments on time. So, maintain at least a six months gap before you apply for a second line of credit.
5.Keeping Credit Card Accounts Open
Never close a credit card account even if you are not using it.
Closing a credit card account can also hurt your credit score and credit utilization.
Making money is dependent on your skill, but it takes a wise head to manage money better. If you are looking to improve your credit score, then going for the personal loan options is a great idea.
But there are caveats to the approach. It is essential to use your spending power wisely to make the plan work. So, hold off on those multiple applications for credit lines and make all the payments in time to successfully boost your credit score.