Capital is required to buy a new home, purchase a car, meet educational expenses, pay your medical bills, or take an international trip, besides others. Finance to meet such needs may be obtained by borrowing a loan from a financial institution.
Banks take numerous aspects into consideration while approving a loan application. They conduct a check on your annual income, credit score, age, and current assets and liabilities, among others. One of the most important factors taken into account by banks while approving a loan application is your credit card history. The way you avail of credit and the frequency of bill payments determine whether or not you will get approval on your loan.
Understanding credit card history
Every time you make a bill payment, information about the same is stored as a part of your credit history. This credit history determines your creditworthiness. It shows how reliable and responsible you are towards making repayments on time. Timely repayments provide assurance of your ability to repay, thus increasing your chances of getting a loan approval.
Tips to build a good credit history
Building a good credit history is the first and the most important step in getting approval on a loan. If you are looking for ways to improve your credit history, check out the following three tips:
- Pay off debts on time
Banks do not levy any interest if bills are paid within the billing cycle. Paying on time not only avoids interest, but also helps you build a good credit history. When you make timely bill payments, lenders perceive you as a low-risk individual and sanction your loan quite easily.
- Have more than one card
Not having any card means unavailability of credit history information, which will make your credit file inactive. Lenders will not have any credit records to look at while determining your ability to repay. It is, therefore, advisable to apply for an offline or online credit card and make timely repayments to build a good score. You may use multiple cards to further enhance your chances of getting a loan.
- Do not miss a repayment
Missing a repayment will leave a negative mark on your credit history and will bring down your credit score. It shows that you are not serious about paying off your debts and may even indicate that you are not capable of making payments. It is, therefore, necessary to avoid missing bill payments. You may schedule an auto debit in case you forget to make payments of your bills.
Maintaining an excellent credit history is important to avoid your loan proposal from getting rejected by lenders. Keep the aforementioned tips in mind and improve your credit history. You may monitor your report at regular intervals, make bill payments on time, and maintain a healthy combination of credits; thus improving your chances of getting a loan approval.