Some people have the luck of having a good credit score so that they can apply for a loan in banks and financial institutions without fearing rejection. However, your credit score does not remain the same for years.
There is a big chance that your credit rating would go down if you are not careful with your borrowing and spending habits. Once your credit score goes down, you would find yourself getting rejections from lending companies that used to welcome your loan application with open arms. You have no choice but to start from the bottom again and rebuild your credit history. However, you can avoid this from happening in some ways. Here are two ways to avoid hurting your good credit rating.
Know When a Loan Is Necessary
Nowadays, taking a loan has become as easy as spending your money. You can apply for a loan through the internet. The moment you send your application, a lending company reads it and makes instant decision to approve it. After a few hours, you can see the funds on your bank account and withdraw it anytime you want. The sad thing is you tend to spend the money you got faster than how you got it. But, are these reasons enough to get a loan that you must pay for several months?
You must only take a loan for the time when you have an emergency that requires an amount that you do not have or instantly raise. A severe accident or illness involving a family member could mean high expenses that your salary and savings cannot cover. The need is urgent in a life and death situation. Finding someone to lend you a few thousand dollars could be a challenge. Your only option is to apply for a loan and the position where you are in justifies the action. At this point, a loan is of utmost necessity.
Putting Limits to Your Expenses
If you think about all the things that you want to buy, your list would be very long and you would be adding on it every minute of your life. Wanting to own something does not mean you have to buy what you want. You can still use your old one while saving for a new one. Buying new clothes when you have plenty is impractical. Taking a loan to get things that you already have is a total waste of money and is not a good reason to borrow money.
The fact that many lending companies ask how you plan to spend your loan proceeds indicates that you must not take a loan for unnecessary expenses.
Paying for your loan is like working on a project. In the first few months, everything goes smoothly, and you are confident of finishing the project before the deadline. However, the few last months of paying your loan could be as tricky as finishing your project. Sometimes you find it now challenging to get the cash for your loan payments. You have already depleted all your resources. The last two months of paying your loan seem to be several years.
At the last two months before becoming debt-free, you gave up and thought neglecting the final payment won’t hurt you or the lender. However, the omission would stay in your credit record, and this information can damage your credit record. You would find it challenging to take significant loans from banks and other lending institutions.
Taking a loan for your wants, and spending like your source of cash would never dry up could surely ruin your credit record.