Credit scores are very important numbers that most lenders of payday installment loans often use to determine whether or not to extend credit to a consumer, the interest rate and terms of the loan. Generally, the lower the credit score, the less likely one will be approved for a payday installment loan or if approved, the loan terms adjusted and you will pay a higher interest rate. Borrowers with higher credit scores are considered to be less risky which allows you to get lower interest rates on your payday installment loan and lowers the cost of total loan amount.
A credit score is a numerical summary of one’s credit report. Since it’s composed of a number, most creditors and payday installment loan lenders can easily assess your credit risk and can make a decision. Credit scores range from 300 to 850, with 300 the lowest and 850 the highest. There are many different methods of credit scoring and some payday installment loan lenders have their own credit score computations. The most widely used version of the credit score is the FICO (Fair Isaac Corporation) score which is named for the company that developed the score.
Moreover, all three major credit bureaus have their own version of the FICO score. The Equifax uses the Beacon system, the Experian uses the Experian-Fair Isaac system, and the TransUnion uses the Empirica system. Even though the systems are different, each produces comparable credit scores which are broken down into five categories:
· Payment History = 35%
· Total Amounts Owed = 30%
· Length of Credit History = 15%
· New Credit = 10%
· Type of Credit in Use = 10%
Here are some practical ways to improve the categories that compose your credit score:
1. Always Make Timely Payments
One of the best ways to keep your credit score high or improve it is to make timely payments on your payday installment loans and other lines of credit. Payment history is said to be the largest factor that is used to determine your credit score. So, payments that are 30 days or more past due will show up on your credit report and can negatively affect your credit score. These negative marks usually stay on your credit report for seven years.
2. Total Debt Load Should be Under Control
The second largest factor that affects your credit score is the total amount you owe, so keep borrowing under control. If you currently have a significant amount of outstanding debt, stop borrowing and work on paying off the balance. This may not be easy, but if you want to improve your credit score, you must learn to reduce and control you debts.
3. Have your Old Accounts Open
The length of your credit history plays an important factor in improving your credit score, so keep your older accounts in good standing open. Though you want to keep the total number of accounts manageable, sometimes it may be disadvantageous if you close an old account that can help your credit score increase.
4. Take Precautions When Opening New Accounts
Though a new credit is the least important factor in your credit score, it still can affect your report. When you are constantly applying for a new payday installment loan or credit card, in a relatively short span of time, this can lower your credit score. Also, opening successive new accounts can lower your debt-to-income ratio that will make a great impact on your credit score.
There are many ways to improve your credit score. All that is needed is discipline and sense of responsibility.