Since you can take out a loan despite the bad credit history, you should not focus on your credit scores, right? No, not at all, stop being under the impression that credit scores are not worth considering when it comes to lending you money.
The number of borrowers is on the rise and more than half of them are dependent on online loan companies to meet unexpected expenses because of less-than-stellar credit scores. Loans for Poor credit with no guarantor are easy to avail, but it does not mean that you will ignore the importance of credit scores.
What is a Credit Score?
A credit score is a three-digit number that informs a lender about your creditworthiness. The lower the score, the higher the default risk, and the higher the score, the lower the default risk.
Equifax, Experian, and TransUnion are three main credit bureaus that maintain your credit reports. Credit scores range from 560 to 999 breaking them down under five categories: excellent (961 – 999), very good (881 – 960), fair (721 – 880), bad (561 – 720) and very bad (0 – 560).
The score is typically calculated by taking into account how often you make repayments on time and how many accounts you have been handling at the same time.
You could have different score at the same time because your lender might not have informed all credit bureaus about your repayments and defaults or they may only report to one or two bureaus or probably none of them.
You may have different scores depending on the lending situation and different scoring model as well. However, each model more or less considers similar factors – your repayment history, the length of your credit, the type of credit you have owed, the number of debts, and hard inquiries on your credit report.
Why Should You Have a Good Credit Score?
You may think of building credit worthless because you can get loans for bad credit with no guarantor from direct lenders. Without a good credit score, you may lose to get:
Attractive interest rates
A high credit rating gives you a chance to take out a loan at competitive interest rates. Since your credit report shows up very low default risk, the lender will sanction you the loan at lower interest rates.
Credit cards with lower APR
Credit cards are more expensive than other short-term loans and they come with very low balance because of disappointing credit history. With a good credit score, you can get a credit card at lower interest rates with a high limit.
Long-term loans easily
Even if you do not feel like applying for a loan, you should focus on maintaining a good credit score. On-time payments of utility expenses will certainly help you avoid losing the score. Bad credit borrowers struggle to get long-term loans like mortgages. Direct lenders may also turn your application if your credit score is poor. With a stellar credit score, you can get long-term loans easily.
Tips to build your credit
- Pay all your utility expenses and credit card bills on time.
- If you have missed a repayment, try to settle dues within 30 days. Otherwise, your lender will update your default to credit bureaus.
- Do not consume more than 30% of your credit card balance.
- Do not close credit cards even if you are not using them.
- Avoid filling out multiple loan applications because hard inquiries show up on your credit report that pulls your score.
- Use your credit card only when it is extremely urgent and you do not have cash. Make sure you pay back the debt within the grace period.
- Review your credit report periodically.
No matter which type of loan you are applying for, you should have a good credit score to get the best deal.