Most people have to borrow money to pay for major purchases such as a home or car. When applying for a loan from a bank, credit union or lender, your credit score is checked to see your track record for repaying debts. This score is a three-digit number that indicates the odds that you’re a reliable borrower. A rating of 700 is considered to be good and shows lenders that you’re responsible. The better your score, the better your loan options and terms. If you have no credit or poor credit, here’s what you should know about establishing or raising your score.
Controlling Your Debt
The quickest way to establish credit is by borrowing money and repaying it on time. This can be accomplished through the responsible use of a credit card. If you have a poor borrowing history due to a large amount of debt, you’ll need to get that debt under control. Paying down your loan balances is the best way to improve your score. Consider taking out a personal loan to consolidate your debt. If you’re approved, you can use the money to either pay off your high-interest loans and/or convert your debts into a single loan that you can pay off. Look into Online Loans in Canada to explore your options.
Diversifying Your Credit
Lenders like to see that borrowers can handle different types of debt. Revolving accounts involve a fixed cap (or credit limit). You have to repay this debt on a monthly basis, paying interest only when there’s a balance. Credit cards and lines of credit are revolving accounts. Installment loans refer to a fixed amount that must be repaid according to a set amortization schedule over a period of months. You pay these debts back in installments. Mortgages, student loans and auto loans are popular examples of installment accounts. Having a diverse credit history is responsible for 10% of your score.
Maintaining Your Accounts
Having a balance on your accounts also impacts your score. Revolving accounts with high balances have a greater negative effect than installment accounts with balances. Most installment loans have a longer repayment period than that of a credit card. Using a personal loan to consolidate high-interest debt from a revolving account can result in a positive bump to your credit rating.
A good credit score shows that you’re responsible when paying back your debts. Personal loans and other types of installment loans can improve your credit rating with time. Having a good score gives you access to more favorable borrowing terms.