When applying for loans, whether in banks or lenders of payday cash advances, credit scores are an important requirement. In banks, loan applicants with good credit scores are easily approved. Lenders of short-term loans, such as payday cash advances, do use credit scores to determine credit worthiness but they use your credit history.
So what is a good credit score? A credit score helps establish your credit rating as perfect, excellent, good, fair or bad. These scores are used by lenders in determining your level of risk. The usual range for credit scores is from 300 to 850. The rationale is the higher is your credit score, the less risk you will give to your lender. How do you get good credit scores? The answer is simple. Pay your debts on time and avoid bad credit (foreclosures, bankruptcy, liens, and repossessions).
Establishing a good credit score is a process. Here are the things that you should do:
1. Find out the elements that can affect your credit score.
There are 5 categories that affect your credit score according to FICO: 1) payment history (35%), amount of debt (30%), length of credit history (15%), new credit lines (10%) and types of credit used (10%). These will help determine what your credit score will be.
2. Make timely payments on your existing debts.
Payment defaults will reflect on your credit report. If you are 30 days late on your obligation, expect that your credit score will be lowered in the range between 60 to 110 points. Also, you will incur additional charges and late fees that will make your debt more burdensome.
3. Avoid collecting numerous debts.
This means that you should avoid too many debts. Remember that 30% of the calculation of your credit score is determined by the amount of debt you owe. Even if you make your monthly payments on time, you will still get a low credit score because of so many accumulated debts.
4. Keep your credit card accounts, even with zero balance, open.
Existing credit files, even old ones, can be good for your credit score. Even if you pay off a credit card and do not close it out. However, in some cases closing old accounts may lower your available credit and your credit score in the process. The length of your credit history will be a big help for your credit score in the future.
5. Use one type of credit at a time.
New credit lines compose 10% of your credit score. So when you apply for different types of credit accounts such as mortgages, car loans, credit cards and payday cash advances, this can affect your credit. If you intend to apply for new credit, wait at least 6 months.
A good credit score offers many benefits. It opens door to many opportunities. Establishing a good score is not difficult as long as you have the determination to do so.