Consumer financing is the activity when a business provides financing options to the customers taking the help of a professional financing company. It enables the consumers to purchase a good product or service they remain unable to pay for hard cash or credit card.
Nowadays, credit score plays a vital role in representing the financial health of individuals. Moreover, it helps lenders to get an overview of how efficiently and responsibly you utilize your credit. The higher your credit score is, the more you are likely to get new loans or credits in the future. Another significant thing you must remember is that a better credit score makes it easy to achieve loans with the lowest interest rates available when you acquire them. But it is pretty laborious to improve your credit score. However, we will discuss some easy steps in this article that will undoubtedly help you boost your credit score comfortably. Always remember that building a proper strategy to maintain your wealth is a must to lead a hassle-free and comfortable life.
1. Evaluate the credit score:
Reviewing your credit score will allow you to understand what can help you to improve it. Hence, it would be best to download your credit report first from the leading national credit information companies. Moreover, you can avail a copy of your credit report free of cost once per year from the official website of the AnnualCreditReport.Com. After that, evaluate each of those reports carefully to know what is improving or lowering your credit score. If you observe any issue that can tear apart your credit scores, rectify those disputes immediately to ignore further complications.
What is a credit report?
A credit report defines the comprehensive breakdown of a person’s credit history composed by a credit bureau. Credit agencies gather financial details of a person and prepare his credit reports according to that information. Nevertheless, the consumer financing companies utilize these credit reports with other relevant information to determine the loan eligibility of that applicant. Credit reports cover numerous info like the address, contact numbers, credit history synopsis, and employment details of the loan applicant.
Some valuable factors like on-time payments of EMI, low credit card balance, multiple credit and loan accounts, and less inspection for new credit approval play a significant role in upgrading your credit score. On the other hand, issues like late or due EMI payments, inflated credit card balances, and negative older credit judgments can reduce your credit score massively. Therefore, you must be aware of the factors we mentioned already to maintain your credit score at ease. Besides, you can take the assistance of our Consumer financing department to make your concept clear.
2. Don’t make any delay in clearing your bill payments:
The prime factors that play a vital role in determining an individual’s credit scores are as follows.
i) Installments payment history.
ii) Amounts owed.
iii) Credit history length.
iv) Credit mix.
v) Now loan inquiries.
Payment history has a massive impact on credit scoring. It is almost 35% responsible for determining your credit score. Hence, it is essential to pay your monthly installment debts in time. If you clear your payments in time, it will help you to push your credit score to a higher level for sure. However, you can follow our given suggestions by which you can pay off your debts properly without facing any delay in payments.
- Always keep a record of your monthly bills so that you can track your due payments regularly. This record can be either digital or on paper.
- Set a notification alarm for due dates. Thus, you will get notified when the due date is near. Most times, borrowers have to pay bounce charges as they could not get any notification about the last date of their monthly bill payments. Hence, you have to resolve this issue at an early stage.
- You can make use of the automatic online banking system to pay your bills spontaneously from your bank account. Therefore, you don’t have to become confused about funding your account severally. The bank will pay your monthly payment automatically on your behalf.
- Keep your account funded before the due date to avoid negative credit ratings and bounce charges of late payments.
Another thing you can do is to impose all your monthly installment payments on a credit card if you have one. It works great when you want to cover the full balance with a credit card every month to keep yourself away from the extra interest charges. With this strategy, you can reduce the risk of delay in payments and can enhance your credit score if you can continue it for the long run.
3. Try to use less than 30% credit amount:
In consumer financing, the term credit utilization defines the credit amount you are using within a specific time. It is one of the most significant factors that helps in calculating the credit score of an individual. We suggest you utilize your credit card with a high balance alert attribute to ensure no new charges are being added while your credit utilization is climbing up.
Paying your credit card estimates in full per month is the most convenient way to keep your credit utilization in regular observation. If you remain unable to do that, a decent way is to keep your total credit utilization balance less than 30% of your entire loaning amount. Remembering it, you can aim to trim the percentage down to 10% or less, which will help you boost your credit score efficiently. On the other hand, you can tell your financing authority to amplify your credit limit in order to refine your credit utilization ratio. The more your credit limit increases, the better credit utilization ratio you will get as your total loan balance does not increase here.
Credit card issuing companies provide online application features to the cardholder who want to increase their credit limits. With this feature, cardholders can submit their requests online by updating their annual household income only. The approval process requires only a few minutes if you are eligible. Moreover, you can ask to increase your credit limit over the phone call also.
How does it work?
The credit utilization ratio depends on a borrower’s revolving credit. It is an evaluation that shows the total debt a borrower is using compared with the entire revolving credit that they have got through consumer financing. Keep yourself focused on your current debt to income proportion while managing your credit amounts. This proportion includes both revolving and non-revolving credit. Furthermore, it might appear to be a significant factor during the submission of your credit application. You must try to keep your revolving credit utilization below 30% for a better credit score.
How to evaluate the credit utilization ratio?
If you want to evaluate your credit utilization ratio, you need to gather all of your credit cards. After that, add the current balance of all of your credit cards. Then, sum up the credit limits of all of your credit cards. Once you have done this, the next step is to divide your total credit balance by the credit limits summation. Then multiply the results by 100 to find out your credit utilization ratio. Thus, it is pretty simple to calculate your credit utilization ratio.
For instance, the three credit cards you have with you are as follows.
Card-1: Credit limit $4000 and available balance $1000.
Card-2: Credit limit $10000 and available balance $3500.
Card-3: Credit limit $9000 and available balance $4500.
The total credit limits across all the cards is $4000 + $10000 + $9000 = $23000. Now, the total used balance is $1000 + $3500 + $4500 = $9000. Hence, the credit utilization ratio is $9000 ÷ $23000, or 39.13%.
4. Combine all your debts and make use of credit monitoring to analyze your progress:
i) Debt consolidation
You can take the help of a debt consolidation loan from a bank to clear all the payments whether you have lots of consolidation debts. After that, you have to clear one payment only. You can repay your debt quickly and steadily if you can avail of loans with lower interest rates. It will undoubtedly improve your credit utilization ratio and can as well enhance your credit score accordingly.
Another strategy of consolidating multiple credit card balances is to pay them back with the help of a balance transfer credit card. Credit card balance transfers are for the borrowers who want to shift their owed account into a credit card with the lowest interest rates and more advantages. The most satisfying thing is these cards often provide a promotional period in which you can avail loans with 0% interest rates on your current balance! But, you must be conscious of the balance transfer charges that might cost you up to 3-5% of your transferable amount.
ii) Track your credit score changes:
If you want to check how your credit score is changing, nothing can be better than credit monitoring services. Most of these services are free and keep an eye on the changes of your credit report. Moreover, they can allow you to access top-notch credit information companies to have your credit score updated. Thus, you can easily track the credit changes in your paid-off account or a recently opened credit account.
There are numerous high-quality credit monitoring services available that are capable of preventing your identity theft and fraudulence. Moreover, these credit monitoring services can track changes to the creditworthiness of the credit card holder and can alert them if any malicious incident happens accordingly. For instance, you will get a notification regarding a new credit card account reported to your credit file that you have not opened by yourself. Then you can take the assistance of the credit card company to report it as a fraud.
5. Handle the delinquencies with your old account:
The age of your credit account’s credit portion defines how many days long you are using your credit accounts. The older your credit account is, the more you are eligible as a lender. Hence, never close your old credit accounts, although you are not using them. These accounts might appear to be significant to improve your credit utilization ratio, as the credit history of these accounts would stay in your credit report. Thus, deactivating credit cards when you have balances on your other card will turn the table in your favor.
Delinquency rates are calculated as a percentage of credit accounts/ balances for a specific time due for personal loans, credit card loans. If you have a delinquent account, try to clear it up as soon as possible. Besides, if you could not pay your monthly bills multiple times or missed payments somehow, prepare yourself for making future payments within the particular time. However, it won’t delete your past late payment records but can polish up the payment history that you are carrying forward.
Having a charge-off on your credit history means serious consequences for your credit record. It might cause a massive negative impact on your future borrowing eligibility. Therefore, it is important to determine whether you pay back your charge-offs accounts in full or ask your creditor to perform a mutual settlement. You should know that remunerating collections or charge-offs in full can improve your credit score moderately. Otherwise, the financing authority might impose bankruptcies due to several negative account remarks on your credit report for seven to ten years.
Conclusion
You must be aware of improving your credit score if you have a plan to apply for a loan in the future. Nowadays, having a credit card is essential to apply for a personal loan regarding purchasing a new car, buying a new flat, or getting cash back for emergency expenses. It takes a few weeks or months to see the impact on your credit score when you take the correct steps we mentioned above. Besides, you might need practical suggestions from our expert consumer financing help-desk team to remove the negative impacts from your credit history. For more financing-related inquiries, contact us now.