Improve your credit score without taking out a loan because “there are other things to think about.”
For some people, having a bad credit rating can feel like the end of the world because it can make it difficult to obtain any type of credit from a bank, such as a mortgage.
People in these situations should consider acquiring a loan or a credit-building credit card since it will help them demonstrate their capacity to be responsible and pay things back on time, which will help them improve their credit rating. However, there is a lot of advise out there about adopting credit building strategies to improve one’s credit score, but this might backfire. There are a few more things to think about before taking this path.
Laura Mossman of The Money to the Masses podcast gave listeners advice on the potential downsides of these procedures, as well as other options for improving a person’s credit score.
“It is never a good idea to borrow money that you don’t need or that you don’t have a precise purpose for borrowing,” she said.
“Taking out a loan uses up some of your credit quota, so when other lenders, such as a mortgage lender, evaluate the affordability of a future product you take out, they’ll look at any outstanding loans and payments you have to make.
“As a result, you may inadvertently limit the amount you can borrow for a mortgage or remortgage, or even something as simple as auto finance may be jeopardized by having this previous loan in place.”
Ms Mossman also explored the drawbacks of credit-building approaches for persons who already have bad credit.
Due to missed payments or defaulting on any loans, a person’s credit rating may suffer.
“Defaulting on a debt could have a significant impact on your life in the future,” she continued.
“It could prevent you from acquiring a mortgage, vehicle financing, or even limit the number of current accounts you can open in the future.
“These are all factors to consider before taking out a loan solely to increase your credit rating.”
People who use credit builder credit cards may end up paying higher rates when they use these items.
This could make making these payments much more difficult.
There you have it: “Brinkwire Summary News.”