Loans affect your credit score more than almost any other item on your credit report. The types of loans you have, how long you have had loans, the amounts you owe and your payment history on your loans has one of the biggest impacts on your credit score. If you can control your loans, you can boost your credit score.
There are a few tips that can get you well on your way to painlessly managing your loans:
If you got a poor deal on a loan – especially a major loan such as a car or home loan – or if your credit rating has improved since you got your loan, you may want to consider refinancing. Refinancing means that you take your loan to another lender in order to enjoy better terms or rates.
You don’t want to do this too often – it prevents you from developing long-term relationships with lenders and results in inquiries on your credit report – but if you have good reasons to refinance, it can actually help you repay your debts. For example, if you can get more reasonable monthly bills that you will actually be able to repay, refinancing can help prevent all those non-payment credit dings that come from not being able to pay your bills. Making your payments more affordable can save you money and can save your credit score.
In the short term, refinancing can push your credit score down, as you will acquire inquiries on your credit report as you look for a new lender and as you close old accounts and open new accounts. In the long term, though, refinancing can be a good way of boosting your credit score. If you are now missing or delaying payments because you cannot afford monthly bills, for example, refinancing a loan or two can be a good way to get back on track and can get you repairing your credit score again.
If your credit score is bad but you need a loan, consider services that cater to people with poor credit scores. These companies know that some creditors with poor credit scores will still make their payments on time and so are willing to speak with debtors other companies would reject out of hand. You may have to deal with higher interest rates, but choosing a bad credit lender can go a long way to ensuring that your credit score won’t disqualify you for a loan.
In the long run, you can always refinance your loan to take advantage of a better rate once your credit score improves.
Many people assume that having an excellent credit score is enough when applying for a loan. It is not. Some lenders are not terribly scrupulous about offering you the best rate – especially if they can gain by having you pay higher interest. Some lenders will try to tell you that your credit score is lower than it is and that disqualifies you from a better rate. Some may rely on your ignorance (or what they think of your ignorance) about your credit score to quote you a worse rate.
Never let a lender do this. Always look up your credit score before shopping for a major loan and if you are quoted a rate you think is unfair, speak up and tell the credit officer that your credit score of 700 (or whatever the score is) seems to indicate a better loan.
Show the lender your printed copy of your credit score. If the lender tries to tell you that lenders get more accurate credit scores than customers who look up their own credit scores or tries to tell you that your credit score has changed, walk away. There are many reputable lenders out there. Find one of them rather than relying on a lender who will try to lie to make a profit.
If you apply for a loan over the telephone or online, your credit score will count the most, because that is all the lender will likely look at before getting back to you with a quote. If you have bad credit but still need a loan, meeting with a lender face to face is your best bet because an actual meeting allows a lender to get an impression of you, and allows you to explain the problems you have had in the past and the things you are doing now to make yourself a better credit risk.
When you meet worth a lender in person, you force them to stop looking at you as a credit score number and make them look at you as an entire person. This can be a huge advantage for you (especially if you are personable) and can help you get the loan your credit score does not completely qualify you for.