Having a low credit score can have a drastic effect on your life, especially when it comes to dealing with debt. Low credit scores would mean higher interest for any loans. Your score will also impact your chances of getting a loan, and credit or debit cards like Visa debit cards.
Thankfully, there are ways you can improve your credit score and this article is going to mention a few important. Take note that most of these tips revolved around credit card use.
This is because in the world of credit scores, not all loans are equal. Specifically, credit card debt will have more impact to your credit score compared to mortgage, car loan or student loan.
Pay Down Your Credit Card Debt
If you want a drastic improvement on your credit score, then what you can do is to pay your credit card debt. However, do not pay it all, as no credit is just as difficult as low credit score.
What you want to learn is credit utilization ratio management. The credit utilization ratio is your credit card debt in relation to the total spending limit. For example, if you have a limit of $10,000, then you are in debt of $3,000. You have a credit utilization of 30%.
Aim for 10% utilization. For credit scores higher than 785, an average of 7% debt utilization ratio is common.
Keep in mind that mortgages, car loans and student loans are not subjected to this credit utilization ratio factor.
Credit Card Debt To Personal Loans
For people with a lot of credit card debt, there is one trick that is worth pursuing. The strategy involves converting your credit card debts to personal loans.
There are a few key reasons for this. Personal loans are considered as installment debt, and this is primarily the reason why it does not impact the way credit card debt impact the credit scores.
Also, as mentioned before, personal loans are not subjected to credit utilization ratio. If done properly, your credit score may boost up to 100 points.
Another reason is because personal loans typically come with a lower interest rate compared to credit card loans.
Of course, it is still better to pay off your credit card debt with the money you saved, rather than another loan. But if you are strapped out of cash, then this option is definitely worth a try.
Check Your Credit Report Regularly
It’s easy to assume that your credit report is accurate as it is, and simply do what you can to improve the score. However, have you ever considered checking the credit report for errors in the first place? After all, humans are bound to make errors. It is best to keep on top of your finances in this way to succeed on the financial ladder.
In fact, according to statistics, 1 in 5 consumers have an error in their credit report. This is according to a 2012 study done by The Federal Trade Commission.
According to the report, about 13% of the consumers have errors that made a huge impact on their credit reports, while 5% had errors that led directly to denial of credit or paying more debt.
In today’s world, your credit report is more important than ever as it can affect different areas of your life. Thankfully, having a low credit score is not a curse for life. As a start, you can try to pay down your credit card debt, convert your credit card debt to personal loans and/or regularly check your credit report for errors.