Living with bad credit can make life harder, but is it possible to raise your three-digit score? Keep reading to find out why you should give your score a polish and how to build better credit.
Why Should You Build Better Credit?
Financial institutions check your credit score to see how you’ve used installment loans and lines of credit in the past. With a good score to your name, you demonstrate you use these accounts responsibly, so they’re more willing to approve higher lending amounts at lower rates.
A common misconception about credit is that no financial institution will give you money when your score is too low. While it’s true some financial institutions may deny you funds if you fall below their requirements, other lenders are willing to work with people with all kinds of scores. Try searching for loans based on your location, like installment loans in Illinois, and you’ll be surprised to see the number of lenders available to you.
These financial institutions may look at other financial info along with your score to determine if you can handle an installment loan. If your income and pay schedule suggest you can cover your future payments, you may be approved for an installment loan.
It’s important to note that many installment loans for bad credit come with higher fees to offset the risk you present to lenders. That’s why the installment loan experts at MoneyKey recommend only ever using these cash advances for unexpected emergencies.
How to Improve Your Score
If you don’t need to borrow money urgently at this moment, then you can focus on bringing up your score to unlock better rates in the future.
To do that, you have to change your relationship with money and demonstrate to future lenders that you’ll use their loan wisely. Here’s how:
1. Pay Bills on Time
Your payment history is one of the biggest factors of your score. Ultimately, a lender wants to be paid on time, so you want to show you can follow due dates. Make sure you don’t forget to pay installment loans and use a budget to ensure you always have the cash available by the days bills are due.
2. Use Revolving Credit Sparingly
Next to payment history, your utilization rate is the next biggest factor of your score. It represents how much of your available credit you use.
For example, if you spend $500 on a $1,000 line of credit, your rate would be 50%.
This is too high, according to most financial experts. Generally speaking, you should aim for less than 30% of your available limits across all revolving accounts, so you’ll want to focus on paying these balances down.
3. Wait
Waiting may seem too passive when your goal is to build a better score, but it’s what you may have to do if your file sports delinquencies and other bad marks. These entries stay on your file for as long as seven years and may affect your overall score while you’re setting better habits.
Bottom Line
Don’t be discouraged — eventually, all your hard work will start to show results.
The trick is to pack your file with responsible instances of credit so that you have nothing but good stuff in your report once the bad entries expire.
Paying bills on time and reducing your utilization ratio can help you keep bad entries off your record. Together, these habits may help you change your score and qualify for better installment loans online in the future.