If you have applied for a loan before, you must understand the prominence of a credit score. If that is the case, then why is your credit score getting low? Have you pondered on this matter?
Now is the time to analyse your credit score and the possible reasons why it is falling. Many Irish locals have been exploring Google by searching:
- Why my credit score is low?
- What is the low credit score?
- How do you fix a low credit score?
- How to raise the credit score?
These queries clearly indicate that people are not happy with their credit scores. They further want to know how to increase them in a short time.
Let us find out the causes that lower your credit scores and how you can fix them with no hustle and bustle.
5 scenarios where you lack your credit score and find the solution to fix them
Credit scores are the platform on which a lending company can trust a loan applicant. If you have good credit scores, every lending institution wants to offer you a loan. In contrast, you will start declining your credit scores if they are low.
This happens with almost every loan, such as personal loans, car loans or mortgages. This may be the reason why most individuals would like to apply for bad credit loans in Ireland.
The interest rates may be on the higher side, but people are relieved by having a much-needed financial backup. Therefore, keeping the credit score on a decent level is very important.
There are a lot of explanations for why your credit score is going down. The useful speciality is that you can fix them with ease. However, speed might be slower than it was when your credit scores were going down. It will take time, but it will occur.
#1: Missing Payments
The first thing that you should notice is to see if there is any missing or delayed payment or not in your credit history.
Missing any payment or delaying means you are following the norms mentioned in your loan agreement. Sometimes, we miss the payments intentionally or forget to pay. Many times, situations are such that you have to do that. For example, unemployment is when you are incapable of making the payments.
Solution: If your credit score is low due to continuous missed payments, you should do a quick review of the loan and credit cards. Notice any missed payment and make it as soon as possible.
Still, you are not able to pay. Then, inform the lender early and ask for an alternative payment plan.
#2: High utilisation of credit limit
This is a very important point. Most lending institutions suggest customers not use more than 30% of available credit in their cards or loans. For instance, if the credit limit is €1000, then you should keep spending around €300 from it every month.
This will keep the credit score in good condition. During that time, it does not signify that you have to spend only €300. You can utilise more than that if you have to buy something mandatory. Still, you should repay it promptly to avoid any influence on your credit score.
Solution: If you carry a higher credit limit on your card, use it wisely by spending only where it is necessary. Try as much as to use cash during shopping to avoid paying back anything unnecessarily.
#3: Borrowing more than repay capacity
Another scenario where you lose your credit score is borrowing more than your affordability. Many people are there who make this mistake. First, they are unable to evaluate their financial condition and then fail to decide the actual loan amount.
Once they start the loan application, they choose a higher amount but later struggle to repay from their monthly income. All these things contribute to keeping down their credit scores.
Solution: You can avoid this situation by requesting for only an inexpensive amount. First, analyse your current situation in personal finance and then finalise the loan amount to borrow.
An affordable loan is beneficial for you in two ways. First, you can repay the borrowed amount without any burden. Second, you can enhance your credit score by paying back the loan amount under the given time limit.
#4: Not to include any co-signer
It is quite prevalent that bad credit loans in Ireland can be applied with no guarantor. It can be a handy option but, at the exact time, puts an added obligation on you only. This arrangement clears that you will be solely accountable for creating all the loan payments.
As we have mentioned above, situations like losing a job can happen at times. With no co-signer there, you will be unable to make the loan payments, and it is enough to drop your credit score.
Solution: Whenever you apply for a loan, bring a co-signer or a co-borrower. The person should carry a good credit score and be a homeowner.
If you do not make repayments, the co-signer will repay on your behalf. This will prevent your credit score from slipping and will raise the score of the co-signer as well.
#5: Apply for a small loan only
Many people prefer long-term loans irrespective of their small or large funding needs. Sometimes, it is a fine decision if you want to purchase a new home, a brand new car or major home improvement.
If your finances require small funding or you are going through a tough period of financial emergency, you should avoid larger loans. Due to the longer period, small monthly instalments are easy to manage. Still, the total interest you pay will be hefty.
Remember, long-term loans have a significant impact on the credit score. If you miss the repayment, the consequences will be negative.
Solution: Financial emergencies do not allow you to wait for the solutions to be found. If everything is needed quickly, then you should opt for a fast loan only. There are two reasons for it:
- Small loans do not impact your credit score too much. You borrow a small amount and repay in a short period or on the next payday.
- Fast or instant loans can easily be managed from the monthly income. There will be higher chances of proper loan repayments, which is always good for your credit score.
In a nutshell, there can be plenty of situations that cause a low credit score. Simultaneously, solutions are also available to fix them. The only thing you require is to be prepared for the best.
