Collaborative Post
In personal finance terms, few things are as important as your credit score. It will dictate a lot of your financial life, restricting your ability to borrow money or access different services.
Don’t get me wrong, you can have bad credit and still live a fulfilling life. It’s just that it will be harder for you to get loans, and the interest rates you’re granted will usually be the worst around. Life is much easier when you have a good credit score – put it that way!
When your score is low, finding a lender who will work with you is often a challenge. Many traditional banks reject applications immediately if they see a low score. Bad credit loans are sometimes an option for people who need to cover an urgent cost but have a poor credit history. These options usually have higher interest rates, so you must think about whether you can afford the repayments. You should understand how these financial products work before you apply so you can protect your budget.
Okay, so, why is your credit score so poor? Most of the time, it’s because of the decisions you’ve made without realising the consequences. Nobody actively looks to give themselves a poor credit score, it usually just happens over time. In my mind, the best way to improve a credit score is to understand what’s causing you to slip up. So, here are the top reasons your score is lower than average:
You’re borrowing too much money
One of the main points of a credit score is to judge how trustworthy you are when borrowing money. As such, it’s not a bad thing to borrow some money from time to time. The problem is when you keep borrowing loads of money from different sources. The more loans you take out, the worse your credit score will be. It shows that you’re obviously desperate for money, and lenders will be warned against giving your money.
So, you can borrow money, but don’t borrow lots all at once from loads of different lenders. Work on paying back a loan before you take out a new one.
You’ve got too much debt
Similarly, your credit score is affected by how much debt you have. This links to the previous point, but the big difference is that loan applications will also affect your credit score. So, even if you don’t actually get the loan, your application is still noted on your credit report, which brings things down.
With debt, it shows that you struggle to pay things off. If you have too much debt, then you will have a hard time getting any more credit until it’s taken care of. Look into things like IVA advice to help remove your debt and get back to a level playing field. Ironically, getting out of debt can improve your credit score as it shows you’re capable of paying back lenders!
You keep missing payments
This is probably the number one reason your credit score is bad. So many people will make late repayments on various things. This includes your bills, your loan repayments – everything. If you don’t pay for things on time, then it shows you’re reckless with your money. Creditors don’t want to give money to someone who might not pay them back on time!
Luckily, there’s an easy way to rectify this; pay for things when they’re due! In a lot of cases, this can be done by setting up direct debits so money automatically leaves your account on the given date.
You can see how all of these things are easily done. It doesn’t take much to miss a few payments or get into debt. As a result, you’re damaging your credit score without even knowing it. Seeing as you’re now aware of the issues, you can work on repairing the damage and boosting your score.