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A Cheat Sheet for a Higher Credit Score
Have you looked at your credit score lately? If so, good for you! If not, why not check out where you stand? Having a high credit score with the three credit reporting agencies (Experian, Equifax and TransUnion) means you won’t need to turn to direct payday lenders. It’s the key to getting a mortgage, online personal loan or even a credit card for emergency expenses. To see what type of credit you have, you must first get a copy of a credit history. Any qualified US resident can get theirs from one of the three reporting agencies. Also if you apply for a bank loan or direct personal loan you may get a copy from your lender if you’re denied because of bad credit. Once you’ve obtained your reports you can check your personal lending history to see where you rate on the list of credit worthiness.
Credit scores, also commonly called FICO scores, can range anywhere from 350-850. As you might have guessed, credit scores near 350 are not desirable. In fact, most people who apply for direct lender loans are going to have a score in this range. On the opposite side, scores nearer to the 850 range are viewed favorably by traditional lenders like banks and credit unions. The closer you are to 850, the more likely you are to receive online loans from actual direct lenders. Consider this true even in today’s shaky economic and financial climate.
If your FICO score needs some serious improvement in order for you to receive a direct bank loan, don’t fret. There are several surefire ways to improve your credit score and even avoid an installment loan. By following these methods you won’t have to shell out major bucks to an online company that wants to “fix” your FICO score for you. Instead, you should ask yourself these seven lending questions. Answer these questions correctly and it bodes well to avoid a payday loan direct lender. You’ll be on the way to raising financial profile into one that qualifies you for better financing. Also consider avoiding companies that charge a few to delete past credit or bankruptcy problems. You can often do this on your own and there are many credit report scams listed on the Federal Trade Commission site about these issues.
1. Do you make your monthly loan payments on time?
This may seem like a simple question. But, do you pay bills and online loan payments on time? Answer honestly and think about your entire financial portfolio. If you don’t pay your bills on time on a regular basis, you are doing yourself a major disservice. Consider what will happen with different lenders down the road. Not paying bills on time can lead to hefty late fees (sometimes as much as $40 for a single late payment.) It’s also going to increase interest rates that are already high with payday loan companies and installment loans.
In addition, you may not realize that forgetting to pay bills on time will have lasting effects on your credit score. FICO scores are weighed heavily on different factors, including payday loan payment history. Even one 30 day late payment can result in a dramatic drop in a borrowers profile. If you continually forget to pay your bills on time, it’ll have a lasting effect on your score. It will take months and maybe even years to raise a credit score. Lesson here? Pay on time, every time.
2. Can you avoid taking out payday loans?
Cash flow is another term for income. A borrower needs a consistent income to make bill payments on time. Late bills will only increase payments and interest. Also, low income increases your debt-to-income ratio, which also lowers your FICO score (more on that later.)
3. Have you ever declared bankruptcy?
If you’ve declared bankruptcy in the last seven years, then the chances of having a low credit score are high. Bankruptcy shows lenders that you have taken on more debt that you are able to repay, making you a bad candidate for a loan. In fact it can even be difficult to get approved for direct lender payday loans with a past BK.
4. How close are you to the maximum cash advance limits?
Sure, you can pay your minimum cash advance payment each month. But, consistently keeping credit card balances close to their limits has a negative financial impact. This reflects in your credit score, lowering it and making it more difficult to be approved for a personal loan.
5. Are your current and recent accounts active?
It makes sense that to have a good FICO score, you must be spending money. To help keep your FICO high, make sure you have open and revolving accounts that you are paying on time to help raise your credit score. This does not include short term borrowing like payday loans and cash advances. These forms of borrowing are often not reported to the bureaus. Also factor in the amount of student loan debt you have. While this is treated different by lenders and the bureaus, it helps to understand the full financial picture. Contact the US Department of Education for more information on possible student loan debt forgiveness.
6. How many active direct lender loans or credit cards do you have?
Yes, it’s true that you should keep creditor accounts open and active. But, too many credit cards open can have a negative impact on credit and lead to the use of direct payday loans to make monthly payments. A good rule of thumb for a high credit score is to have no more than two to three cards open at any given time. Any more than that will show that you are willing to take on a large amount of debt, which isn’t good for the FICO score.
7. What is your debt-to-income ratio?
As we discussed earlier, it’s important to have income coming in to help you pay debts. However, if you have too much debt or too little income, then your debt-to-income ratio can vary by a bit. Same goes with the amount of direct payday lenders you’re working with. The more active loans you have outstanding the more you’re going to see an increase in interest rates. Debt-to-income ratio describes the amount of debt you have to the amount of income you have coming in each month. A good rule of thumb for a high score is to keep debt to income ratio at no higher than 35%.
While putting in the effort to fix your credit can take some time, it’s worth it. You can avoid actual payday loan companies and work with whoever you’d like. Just think about how nice it will be to buy a new car or house. All thanks to a high credit score and your ability to work hard to get there.