Having a healthy credit score is critical to being able to borrow money quickly. In case you have high debt and feel payment poor, consolidating your debt balances to lower your total monthly payments can help a great deal.
Activities That Are Hard on Your Credit Score
Fully 35% of your credit score is tied to your payment history. If you have only two credit cards, but both are maxed, your credit score will take a harder hit than having more cards with breathing room between your total balance and your top limit.
Borrowing to the extremes of your credit accounts will lower your credit utilization ratio, which will have a negative impact on your score.
Additionally, take care when closing credit accounts. Paying things off and closing accounts that you have had for a while can negatively impact your credit score. If you have a good relationship with a creditor and the account doesn’t have a yearly fee, leave it open.
Soft Pulls Vs. Hard Pulls
A soft pull is a credit check or a loan inquiry that won’t impact your credit score. When you apply for a mortgage, a credit card or an apartment, those credits may lower your credit score.
If you’re concerned about your credit score, skip the loan application and try to get pre-approved for a debt. As a general rule, the pre-approval process is a soft pull and will not lower your score.
Lowering Payment Amounts, Reshuffling Budget
Many borrowers find themselves rather payment poor at the end of the month. In order to ensure that you have a bit more money available is to extend the terms of your existing debt. For example, you may choose to roll over a credit card to a 0% APR card for more time to wipe out a debt.
You may also choose to check out the car loan refinance rate with another lender. According to Lantern by SoFi, “The goal of auto loan refinancing is to secure a new loan with better rates or terms than your previous loan.” Taking the remainder of your car loan balance and extending it for a full five or six-year loan can reduce the burden of a large payment. This will be a hard pull.
If your credit rating is severely damaged and you don’t think you will qualify, check with your banker to see if they can make a soft pull inquiry.
Small Impact
A hard pull on your credit history should not make a huge dent or ding in your credit rating. Credit inquiries can impact up to 10% of your credit rating, much less than payment history or credit utilization. If possible, get preapproved with a lender you trust for a single soft pull before you start shopping for a major purchase.
If you are concerned about getting qualified for a loan, consider setting up a savings account at a credit union. Credit unions have programs in place that can help you to overcome a serious financial challenge, up to and including a savings account loan that will allow you to pay yourself interest and build up a reserve.
