It is very important for everyone to have a good credit score. You may have to take loans for various reasons, and if you have a bad credit score, you won’t get a loan. Here are five reasons you should have a good credit score.
Buying a house
Buying a house is a big investment. If you don’t have a good credit score then you won’t get a loan for your house. Banks are very cautious about lending and they now have very stringent requirements to qualify for a loan.
Buying a car
Car is also a big investment. People take a loan to buy a car. However, car loans are smaller than house loans. Still, you won’t get a loan if your credit score is poor. Even if you get a loan you will be charged a high-interest rate. After buying the car, you need an auto insurance policy. This also requires checking your credit score.
Starting a business
If you want to start a new business, then you probably won’t have enough capital for it. So, you need to take loans. In this case, also your credit score is required.
Getting a job
Nowadays, employers run credit checks on candidates before hiring them. It is done especially in the financial and government sectors. If you have a poor score then you won’t probably get the job.
For all these reasons, you must have a good credit score always. You should make sure that you don’t overspend your money and pay back the money within the specified time limit. This way you will be able to maintain a good credit score.
When you apply for a personal loan, it is hard to tell whether your application will be approved or not. If you get one rejection, it is less likely that you will get a loan from another lender. Here are some reasons why your loan application may be rejected.
Bad credit history
There are different levels of bad credit history. Defaulting is not the only reason why you will have bad credit history. You may have applied for multiple loans in the past few months and for this, you might have bad credit.
If you don’t have sufficient income then your application cannot be approved. This is because the lender won’t be confident that you will be able to repay the money every month. There is a minimum income threshold that must be met in order to get approved for the loan.
Dubious loan purpose
You should find out whether you are able to finance your thing with the loan you will get. Many loans have restrictions on how the loan can be used. For example, you can only get secured loans only by securing certain assets. For your car loan, you might have an age restriction. If your loan purpose is not credible, then you might not get the loan.
The lenders look for stability in your job. You should have a stable job, else your loan application will be rejected. If you don’t have enough employment history, then also you may not get the loan.
You should keep these points in mind and try to maintain good credit score, good income level, stable employment, etc. to increase your chance of getting a loan.
If you want a loan for your business, you can go to a bank, a commercial lender or use your personal credit cards. Before you approach a lender you should know what type of loan you are going to apply for. Here are the various kinds of loans you can choose from.
1. Line-of-credit loans
This is the most useful type of loan for small business owners. You should have this type of arrangement with your banker as it will protect your business from emergency situations. You can get a line of credit for buying inventory and paying operating costs. You can also purchase equipment using this type of loan. It is a long-term loan. It has a low-interest rate and is a low-risk loan. Most of these loans are for one year, but you can renew it after that.
2. Installment loans
You can pay back these loans with equal monthly payments which cover both principal and interest. It can be used to cover any business needs.
3. Secured and unsecured loans
Loans can be secured or unsecured. If the lender sees that the business is sound and that you will be able to repay it on time then you may get an unsecured loan. If it’s a new business then there is very less chance that it will be qualified for an unsecured loan. For a secured loan, you need collateral. Secured loans have low interest rates than unsecured loans.
There are other types of loans available also. You can discuss it with a financial advisor or a bank. A financial advisor can help you decide what kind of loan you should apply for.