Have you been dreaming of buying your own condo unit soon? Is your rent preventing you from saving up enough cash? If you can’t buy a condo yet, a housing loan should be something to consider to help you achieve your dream. But before you head to the bank to apply for a loan, you might want to know how to improve credit score first to increase your chances of approval.

What is a credit score?

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A credit score is basically a statistical number that will tell lenders such as banks the likelihood of you repaying your debt. While banks have their own standards for rating you, the general rule is that the higher you get, the better the chances of getting your loan approved. This includes your payment history, as well as your financial accounts such as credit cards, debts, and other loans.

Your credit score should never – under any circumstances – consider your gender, race, religion, and the likes. If you don’t have any idea yet, here’s a handy guide in improving your credit score.

Increase your income

First and foremost, the best way to improve your credit score is to increase your income. This can be done through a high paying job, a business, putting more money in the bank, investing in the stock market or through DMCI Homes Leasing. A bigger budget could mean that it’s easier for you to pay off your loan, while still being able to sustain your cost of living and your rent, which could increase your chances of loan approval.

Pay ahead or on time

Whether it’s the utility, credit card bills, or the Real Property Tax in the Philippines, you need to pay all of it on time or better yet ahead of the deadline. Not only will this save you the trouble of reconnecting services or having lenders chase after you, but your impeccable payment history will also help improve your credit score. This will tell banks how and when you pay your bills. This will matter to banks as it’s a strong indicator of the chances of you paying them back.

Consistency is key, so it would be best to enroll your bills in your online banking accounts. This will make it easier to track your payment history so you can negotiate a loan and payment terms.

Get out of debt

One of the best ways to improve your credit score while renting is to get out of debt. Having a clean slate will help you prove that you are capable of paying off loans and that you have a sound financial state.

If you have several existing loans, usually it’s advised to pay off the ones with the highest interest first. Sadly, if the loan with the highest interest is also the highest amount, chances are you’ll lose motivation and fail in your payments.

Luckily, there’s a proven method to keep your motivation up when paying debt. Start with the lowest amount first and then pay the minimum for the rest of your loan. This may sound crazy for some as the interest rates may compound over time, but this will allow you to pay off smaller loans faster. Once the smaller loans are paid, you can allocate more funds to your bigger debts. With your debts gone, you can pay for your rent and show that you’re capable of paying the housing loan.

Avoid getting more loans

After getting out of debt, another way to improve your credit score while renting is to avoid getting more loans. Doing so may show the lenders that you do not have enough income or funds in the bank to cover the housing loan. Also, additional loans will lower your credit score – especially if you have missed payments.

Apply for a credit card

Initially, getting a credit card will not help your score per se. It’s how you use it over time and the average age of your card that will.

According to thebalance.com, there are certain ways that a credit card can help improve and worsen your credit score. One example would be every time you get a new credit card, your average credit age goes down, effectively lowering your score in the process. It can also affect your debt-to-credit ratio for the worse, which we will expand later on.

If you use your credit card for small things like appliances for your condo and pay the debt quickly enough, on the other hand, your credit score may increase. The longer you use it, the higher your average credit age will be, which is also good for improving your credit score.

Work to increase credit limit

If you want to increase your credit score, it’s highly advised that you use your credit card enough to increase its limit. You can use it to buy affordable items or even pay rent to increase credit score. Just don’t forget to pay it. This will demonstrate that you are capable of handling different kinds of credit and debt.

Reduce debt-to-credit ratio

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When thinking of credit score and your credit card, one thing you need to keep in mind is the debt-to-credit ratio. Your current balance should be divided by your card’s limit. Anything below 30% is considered a good debt-to-credit ratio, which is always good for your credit score.

Establish rapport with banks by getting smaller loans (and paying on time)

Aside from using your credit card to build a good credit score, you can also establish a good rapport with banks. Do this by applying for smaller loans with flexible payment terms to allow you to pay it quickly. After repeated loans from banks and showing that you can pay it diligently, you build trust and increase the chances of your bigger loans to be approved.

To improve your credit score, all you have to do is increase your income, be diligent in paying your bills and loans, and get a credit card and use it wisely. With proper financial guidance, you’ll be able to start checking the many condo units on the DMCI Homes website sooner than later.