Taking out a loan is essential especially when you need cash fast to meet a financial emergency.
Besides, one should not forget that a loan can help one to improve their credit score in the long run, given they are careful.
It’s no rocket science –
Applying for a loan can negatively affect your credit score but that can be avoided when you are careful. You can do just that by keeping the following things in mind:
You should keep yourself from shopping around for a loan!
When you go to a non-traditional for loans without credit check, chances are high that you might be pre-qualified for the same since they will be running a soft inquiry on your overall financial history.
That is not the case when you are going to a bank and applying for a personal loan or making inquiries. They will readily commence a hard inquiry on your credit history which will bring down your score by at least three points!
Moral of the story –
Don’t go shopping around for personal loans. And if you still want to do that, choose no credit check loans offered by non-traditional lenders.
Be sure to repay your debt on time, every time!
Sure you can miss your repayment deadline by a day or two and that won’t negatively affect your credit score a bit but if you fail to repay your debt even after 30 days – well, then you are in for a ride!
Do this and you will be labelled as a defaulter, of sorts since your case will be reported to the credit bureaus! The result – well a fallout that would damage your credit score a lot!
For instance –
If you had a credit score of say 780 but you failed to pay your instalment within thirty days from the set deadline, your credit score would come down by at least 90 – 100 points!
Meeting deadlines is tough but if you follow a strict budget and financial discipline, meeting repayment deadlines won’t be a problem.
Keep yourself from applying for new credit when you don’t need them!
Avoid applying for a new loan from a lender if you don’t need it. That expensive phone or that diamond bracelet for your girlfriend can wait!
Sure, applying for a new loan helps in increasing your credit limit by many folds but at the same time, your credit score will be subjected to a lot of scrutinies – otherwise known as hard inquiries. Too much of that, your credit score and overall financial track record will receive a lot of negative limelight!
Don’t forget –
The ill-effects of excessive hard inquiries keeps hanging over your credit score for at least two years. Hence, be careful!
Building a good credit score takes a lot of years and yes, a lot of effort as well. Hence, it would be unwise if you do not take calculated steps when you are applying for a loan, to meet financial emergencies. Be sure to follow the unique pieces of advice mentioned above and you will be sorted!