How a poor credit score can hurt your personal loan application
As the end of financial year approaches, money matters are top of mind. Personal budgets might be tightening, spending habits are in focus and borrowing money is surely a consideration for some households.
But before taking a step toward frugality, you might need to run a fine-toothed comb over your finances. And a major part of this is knowing about your credit score. Your credit score is a number or rating that tells lenders about your borrowing and repayment history. Importantly, it also includes how often you’ve shopped around for credit - as in, borrowed money.
So, in short, lenders use this score to help decide whether to lend to you. If they think your credit score looks okay they'll likely give you a loan, like a personal loan , but will still consider how much to actually loan you and at what rate of interest.
This is why it's crucial to stay on top of your debts, get to your bills promptly, and do your best to manage your money with efficiency.
Think of keeping good credit like staying fit! And like the challenge of overcoming a soft middle, you've got to stick with it. After all, your credit score isn't set in stone - it can change.
This means there are ways to keep your score in check and maintain a healthy level. To help with this, we called the experts at Pioneer Credit to give us the following tips.
Here are 5 easy ways to protect and enhance your credit score:
- Check and understand your credit reports: Regularly checking credit reports allows you to identify and address any errors or discrepancies that could negatively impact your score.
- Make timely bill payments: Consistently paying bills - on time - helps build a positive payment history. But if a third party company ends up handling your outstanding debt, they can help maintain your financial wellbeing and improving your overall debt position.
- Keep credit 'utilisation' low: What's this? It's basically what you owe in debts divided by how much credit you have available at a given time. A good ratio demonstrates responsible credit use and shows lenders that you're managing your debt well.
- Diversify credit mix: Having a mix of different types of loans, such as credit cards, personal loans and a mortgage, can demonstrate responsible handling of your financial obligations overall.
- Limit new credit applications: Only apply for credit when necessary. Going for multiple new credit accounts within a short period can raise concerns among lenders and potentially lower your credit score.
Okay - once you've got your credit score in check, it can be easier to borrow money. For example, a personal loan can be an effective way to borrow a larger sum with a considered repayment plan. Our Mozo experts know personal loans and have done the hard work for you already. Compare some of the top personal loans on the market now!