In this day and age, everything is becoming more expensive and we have more reasons to spend money. It’s no surprise people are looking for more money to spend. Think of all the expenses a single person looks to take care of per year. Health, education, housing, transportation, food, entertainment, and more. While some of us are lucky enough to have a stable income, whether from jobs or savings to cover for all of those expenses, not everyone is so lucky. That’s why a lot of people resort to personal loans. It’s quite common that people will take these loans to buy new houses or cars. Some will even use the money to pay for their kids’ school. Some will also use these personal loans to finance a small business
Moreover, banks, on a daily basis, are advertising loan programs. To put things into perspective, personal loans accounted for $167 billion in consumer debt in the fourth quarter of 2021. The reason why these banks advertise loans so much is loan interest. Loan interest can be seen as one of the main pillars of a bank’s revenue. It’s not just the interests but also financial penalties on late interest payments. It’s crazy to think that some people live on just paying those penalties and never actually paying off the whole debt.
That brings us to the topic of this article. When we’re choosing to take a personal loan from a bank, we need to be really careful about what we’re agreeing upon. We need to understand where we stand financially before and after taking the loan. Things like interest rates, and payback duration are all factors we need to consider before we sign a loan agreement.
Learn About Your Financial Situation Before Anyone Else Does
Have you ever heard of the term “credit check?” If you have, then you know what we’re about to discuss. If not, listen up! So, a credit check is basically a general overview of the money you owe and how you deal with it. A credit check will show open lines of credit (such as mortgages), outstanding balances, auto or student loans, foreclosures, late or missed payments, any bankruptcies, and collection accounts.
To apply for a loan, you’ll have to go through a credit check performed by your lender. But it’s important to know that you can run a free credit check for yourself first. You might actually run into an error on your credit check and possibly dispute it. If that’s the case, you might see an actual increase in your credit score. Needless to say, a better credit score equals better chances to get a better loan.
The Higher Your Credit Score Is The Better. Work On It!
We keep hearing the term “credit score” every day, whether on TV, on the streets, or in social conversations. While most of us have a general idea of what credit scores are and how they work, many folks out there don’t really know how their credit score could affect their lives.
So, Before We Talk About How To Improve Your Credit Score, Let’s Look At How Your Credit Score Can Affect Your Daily Life:
- Buying a house: It’s pretty clear that your credit score will directly affect your chances to get a mortgage.
- Getting better interest rates on loans and credit cards: As we mentioned, lenders will look at your credit score first before deciding whether or not to lend you money. If approved, your credit score will be one of the main factors in deciding on your interest rate.
- Renting an apartment: Landlords will generally always want to know your credit history. If you’re unreliable on previous debts and financial obligations, you might have trouble renting certain places.
- Buying a car: Auto loans are usually secured by the car you want to buy. But, lenders will still review your credit history to decide whether you’re eligible for the loan or not. It might even affect the amount of money you’re eligible to borrow. A good credit score can land you a 0% interest auto loan.
- Buying a phone: Obviously, if you’re buying a phone in cash, your credit won’t matter. But, if you’re buying an expensive phone in installments, your credit history will be a deciding factor for the vendor on whether to let you or not. The same goes for leasing a phone.
- Setting up your gas, water, and electricity accounts: Utility companies may check your credit history before starting up your account. If you have a poor credit history, you may have to pay a deposit before they switch your home’s lights on.
- Insurance premiums: Many insurance companies will use a credit-based insurance score. That score depends on your credit history. If you have a good credit history, you may be eligible to pay cheaper premiums.
Now That You Know How Important Your Credit Score Is, Here’s How To Improve It:
- Pay your bills on time:
We all know that if you don’t pay your bills on time you’ll have to pay some sort of late fee. But that’s not the maximum extent of the damage. The problem with late bill payments is that they reflect on your credit history. That makes any future lenders think twice before lending you money or letting you pay in installments. So, always make sure you don’t skip a single payment. If you think you might be late, contact your lender beforehand and figure out a different way to pay.
- Pay any outstanding debts
If there’s anything you should be paying for, try to get rid of it before it’s time to get your credit checked. Keep in mind that late payment information in credit files will show how long you were late on your payment.
- Limit new credit requests
The less times you ask for new credit, the less hard inquiries there will be on your file. Hard inquiries stay on your credit report for two years.
Do Your Due Diligence When It Comes To Lenders
As you’ve probably heard, banks are advertising loan programs on the daily. But that’s a clear sign that you should be looking for the best option. Just because a bank is willing to approve your loan, doesn’t mean it’s a good loan agreement for you. Remember, the bank will never offer a deal that isn’t good for them.
But, if you’re going for lenders that are not your typical everyday bank, then that’s a whole new ballgame. When it comes to unusual lenders, you’ll need to do some serious homework. There are tons of scams out there, so tread lightly on that minefield. Check that your lender is legitimate. Make sure the website has a legit physical address and phone number. When it comes to dealing with money and personal information, credentials are key.
Besides that, you should look into the loan itself. Just because someone tells you they’re willing to give you a few thousand bucks, doesn’t mean it’s a good deal. Check for every clause in the contract. Read the fine print!
Look Into Loan Restrictions
Before agreeing on taking a loan, you need to understand that some lenders will force some restrictions on your loans. Some of these restrictions might sound crazy, so buckle up!
Some lenders may actually restrict what you can use the money for. For example, some loans may not allow you to use the money for a vacation. Other lenders may force certain limitations on when you can repay the loan. Some of them may even charge you extra for trying to make bigger payments. So, you should most definitely take the time to understand all aspects of your loan agreement.
Stay In Your Financial Lane
It might be tempting to borrow the biggest amount you can find, but we’re here to tell you that’s not always the best idea. When you’re taking a loan, it doesn’t mean you own that money. In fact, you’ll only own what you use the money you borrowed for. Besides that, you actually just acquired a new responsibility. Taking a long that is too big might cause problems when it’s time to pay it back. Think of all the payments you’ll need to make and the time you’ll spend in debt. Think also of the possible consequences of not being able to pay back that debt.
If you’re unable to pay your loan back, you might face legal actions. Your lender might sue you, or in other cases, you might have to declare bankruptcy. But in whichever case, this failure to pay back your debt will permanently stay on your credit record. Such a record might cause you problems in the future when you’re applying for loans, or trying to use your credit for other purposes.
So, make sure that you only borrow an amount you know you can pay back. A good rule is to avoid borrowing for luxuries if you’re already struggling financially. Borrow only for necessities or for things that will help move your life forward, such as housing. Only when you stabilize financially should you look into buying things that you might not actually need.
A lot of people are strapped on cash nowadays. The economy is going through a hard time. But life can’t stop. We all need to figure out ways to survive financially. One of the most common ways people use to get financial help is through personal loans. These loans can be put towards many things, such as healthcare, housing, business, education..etc. But it’s important to know what kind of loan we’re getting and where to get it from.
Among the many important points to focus on is your credit score. You should start by getting a credit check yourself and find out where you can make any improvements. It’s important to make these changes before your lender conducts their own credit check on you. You should also be aware of all the factors that affect your credit score and work on them. Besides that, you should know what kind of agreement you’re getting into and who you’re borrowing from. Take your time to find the best loan solution for you before you sign anything.