A credit score is key when lenders decide whether to grant you a loan or a credit card and what interest rate they will charge if you are approved. Before credit scores were available, the lending process was often slow and unfair. If you have a high credit score, you usually are approved for loans at a low interest rate. If you have a low credit score, that's not usually the case, but you have several options to avoid getting hit with a high interest rate.
Get a Cosigner
If you can’t get a low interest rate on your own, get someone with good credit to cosign the loan with you. Many lenders will give you a good interest rate if you have a cosigner. Lenders agree to this because if you miss a payment or they worry you might default on the loan, your cosigner is responsible. Be accountable for your debt, even if you have a cosigner. If you stop paying your loan, besides putting the burden on your cosigner to pay, your cosigner’s credit score could suffer, preventing him from getting future credit or a good interest rate.
Ask Friends and Relatives
Your parents, friends or relatives might be willing to help you out with a loan. When you ask a friend or relative for money, approach the transaction as you would any business deal by writing a contract that you both sign. Be realistic by only borrowing what you think you can pay back, Thomas Fox of Cambridge Credit Counseling told Sheyna Steiner of Bankrate.com. You need to do everything in your power to pay this loan back on the agreed-upon terms; it you don't, you could damage an important relationship. If you don’t think you can pay the loan back, you should not ask friends or relatives for help, said Steiner. Using a company to handle peer-to-peer lending makes the process of managing friends and family loans easier. These companies handle the loan as a neutral third party that documents and manages payments.
Pay Bills on Time
Wait to apply for credit until you raise your credit score. Don’t think all is lost just because you have a history of late payments on your credit report. Once you establish a history of paying your bills on time, your score will eventually rise, says John Ventura, author of “The Credit Repair Kit,” on Bankrate.com. Ventura advises that you “forget about grace periods.” To get the best score, pay your bill before it’s due every month.
Don't Owe Too Much
How much outstanding debt you have is another factor in your credit score. Boost your score by not using all the available credit you have. When you are maxed out on your credit accounts or close to it, your score drops. Don’t close any credit card accounts because doing so would change your credit utilization ratio -- the amount of credit you are using as a percentage of how much you have available.The length of your credit history also affects your credit score; the longer you have had credit, the better.
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