What is a credit score?
Using credit means borrowing money which is expected to be paid back after a certain amount of time. Therefore, a credit score is a statistical record which determines the likelihood of an individual paying back the money he or she has borrowed.
The need for good credit scores
Without a good credit score, the chances of qualifying for a loan (i.e. house loans, educational loans, etc.) or for purchases paid through instalments (i.e. a new car, a new computer, etc.) are substantially reduced. Also, having a bad credit score may also reduce the chances for employment. Most employers check a person’s credit rating as part of a background check prior to hiring.
Different ways of improving credit scores
There are various ways to improve credit scores. These include consolidation, negotiating with creditors, and a systematical approach to paying debts.
a) Debt consolidation
This process combines multiple loans into a single loan. A consolidated loan usually has a lower interest rate. It also eliminates having to keep track of more than one loan. So, not only does it save money, but it is also a more organized way to settle debts.
b) Negotiation for credit card bills
Most credit card companies today are forced into a corner due to the rise of credit card defaulters (people who fail to pay their credit card debts). In turn, creditors are more open to negotiations when it comes to lowering their client’s interest rates. This definitely makes paying bills easier, and subsequently improves one’s credit score.
c) Avoiding non payment of small amount bills
It is always better to start out small, and paying debts is no exception. People’s common misconception is that by paying off their larger bills first, they are taking care of the larger part of the problem. They fail to consider that settling smaller bills beforehand is a more effective solution to get out of debt as well as a quicker way to improve their credit score. Smaller bills are easier to pay back. So, by settling them first, the debtor avoids having multiple bills and is able to improve their credit score with less time. It beats having to wait it out while trying to pay back a rather large bill.
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