Loans are financial products that allow a customer to access a fixed amount of money at the outset of the transaction, with the condition that this amount, plus the agreed interest, be returned within a specified period. While a loan provides all of the money requested at the time it is issued, credit on the other hand provides the customer with an amount of money that can be used as needed, using the entire amount borrowed, a portion of it, or none at all.
Having good credit is one of the biggest rewards of a positive financial lifestyle. There are many benefits to having good credit. Such as being an essential factor in qualifying for the best mortgage rates, personal loans, business loans and lots more. It is used to establish a person’s creditworthiness, loan eligibility, and credit amount. If you’re not sure where you fit on the credit score spectrum, then you should start using Kwaba to build and track changes to your credit score.
However, not understanding credit can also cost a lot. Avoiding common loan mistakes can help protect your credit score. Here are four of the most common credit mistakes you should avoid making.
1. Missing payments: Your payment history is an important factor in determining your credit score. Since your on-time payment record is 35% of your credit score, even paying late only once in a while can wreck your score. In order not to miss payments, you can set up automatic repayment. If auto payment isn’t available to you, set a reminder on your smartphone, write it on your calendar—whatever it takes to make your brain do what it naturally wants to avoid. If you can’t avoid paying late, call the lender. You can often work out an arrangement that won’t get reported to the credit agencies.
2. Not checking credit: Your credit reports are used by lenders in deciding to lend you money. It’s important to always check your credit report regularly to search for identity theft and fraudulent accounts opened in your name. You can also catch credit reporting errors like inaccurate balances and payments. Disputing credit reporting errors is free and can help you improve your credit score. You can use the Kwaba app to request for your credit report.
3. Frequent credit applications: Applying for too many credit cards and loans in a short period is another common credit mistake. Credit applications usually require hard inquiries that temporarily penalize your credit score and can reduce your approval odds for new accounts.
4. Being credit invisible: If you have never borrowed money or opened an applicable account, you are more likely credit invisible.If you don’t have a credit record that the credit reporting agencies can score, you may be “credit invisible.” And you may have trouble getting credit when you need it.
To sum it all, keeping a good credit report helps ensure your credit history is accurate and you get the best credit score possible. You should also avoid loan mistakes such as the common ones listed above and not be afraid to dispute a wrong credit report.
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