Most of us have applied for a loan at some point in our lives. But what exactly is a loan? How much do you know about it? For example, are you able to use a credit card effectively? And how can you improve your credit score? And anyway, what exactly is a credit score?
Click through the gallery and find out what a loan can do for you, how you can use it and how you can best manage your finances.
2/30 photos
© Shutterstock
What is a loan?
A loan is a contractual agreement in which a borrower receives a sum of money or something of value and repays it to the lender at a later date, usually with interest.
3/30 photos
© Shutterstock
The power of credit
Credit is part of your financial power. It helps you get the things you need now, like a car loan, based on your promise to pay later.
4/30 photos
© Shutterstock
What is a credit card?
When you think of credit, you may first think of credit cards. A credit card is a payment card that lets you buy things but doesn’t require you to pay for them immediately.
5/30 photos
© Shutterstock
Using a credit card
Depending on your lender, you may have to pay the amount back later. There will undoubtedly be a fee involved, a small percentage added to the original price, which is paid to the lender.
6/30 photos
© Shutterstock
credit-worthiness
Credit can also refer to the creditworthiness or credit history of a person or Company relate.
7/30 photos
© Shutterstock
Credit history
Your credit history is a record of your borrowing and responsible debt repayment. It also describes how you manage money.
8/30 photos
© Shutterstock
Payment behavior
Your payment history is the most important factor in determining your creditworthiness.
9/30 photos
© Shutterstock
credit-worthiness
A credit score or rating is an indicator of a person’s creditworthiness or ability to repay debts.
10/30 photos
© Shutterstock
High creditworthiness
How well you handle something like a credit card affects your credit score, which is determined by a credit score check or credit rating.
11/30 photos
© Shutterstock
How to achieve good credit
Establishing good credit habits is essential to building and improving your credit history and credit score. How is this accomplished?
12/30 photos
© Shutterstock
Practice of financial administration
Paying bills on time and managing your debt-to-income ratio will help you develop good credit habits. The same goes for avoiding overdrafts on credit accounts and paying off installments before taking on new debt.
13/30 photos
© Shutterstock
Maintaining a credit line
Solid financial management will pay off when you need to apply for another credit card or additional credit, such as for a vehicle or mortgage.
14/30 photos
© Shutterstock
Low creditworthiness
A low credit score can make it difficult to get credit, whether it’s for a mortgage, home renovation, or credit card application.
15/30 photos
© Shutterstock
Higher interest rates are to be expected
Even if you manage to get a loan, you will likely have to pay higher interest rates to offset the increased risk of default.
16/30 photos
© Shutterstock
Make sure your address is up to date
It’s easy to overlook, but it’s very important that your current address is on your credit report. If you move, register your new details with local authorities as soon as possible.
17/30 photos
© Shutterstock
Impact on your career opportunities
Having bad credit can affect your job prospects. Good credit habits can lead to better career opportunities. For example, most states in the United States allow employers to obtain credit reports to support their hiring decisions.
18/30 photos
© Shutterstock
Long-term financial impact
A bad credit score can have a worrying long-term impact on your financial life. If you have high-interest credit card debt, you won’t be able to save money for the future. Debt has no return!
19/30 photos
© Shutterstock
How to improve your credit card rating
There are several ways to improve your credit score. First, you need to improve your credit score. The primary way to do this is to pay your bills on time and in full each month.
20/30 photos
© Shutterstock
Keep credit utilization low
Limit your credit card usage. To do this, keep your credit utilization low. Credit utilization is the percentage of your credit limit that you use. For example, if you have a limit of 1,000 euros and you have used 500 euros of that, your credit utilization is 50%. Ideally, you should use about 30% of your credit limit each month.
21/30 photos
© Shutterstock
Check your credit report
Read and distribute your credit report carefully. Even the most innocuous errors, such as a misspelled address, can affect your score and be enough for a lender to deny you credit.
22/30 photos
© Shutterstock
Beware of double trouble
Be careful when entering into a financial partnership with others. If you have a joint bank account or take out other joint loans, the other person’s credit score can affect your own.
23/30 photos
© Shutterstock
Avoid multiple applications
If your loan application has been rejected, you should resist the temptation to apply for another loan or to get into debt in other ways. Applying for more than one loan in a short period of time can have a negative impact on your credit score.
24/30 photos
© Shutterstock
Loan management
Keep track of your finances. Sit down every month and write down all your income and expenses, such as rent or mortgage payments and shopping costs.
25/30 photos
© Shutterstock
Start saving
If possible, set aside money from each paycheck and use it to pay off your credit cards. This will improve your credit score in the long run.
26/30 photos
© Shutterstock
Is canceling a credit card a good idea?
Contrary to popular belief, closing a credit card can cause the total amount of credit you have to be lower than the amount of credit you use (your debt-to-credit utilization ratio), which can affect your credit score.
27/30 photos
© Shutterstock
Keep your options open
If you don’t use a particular credit card, it won’t affect your credit score as long as the card remains active.
28/30 photos
© Shutterstock
Inactive cards
However, be aware that the consequences of inactive credit card accounts can have undesirable effects if the bank decides to cancel your card.
29/30 photos
© Shutterstock
Redeeming rewards
Having good credit and a high credit score have their advantages. If your rating is good or excellent, you often have access to the best introductory offers and cash back incentives available on a variety of loan products.
30/30 photos
© Shutterstock
Incentives to lend
And some of the best credit cards also offer special invitations to exclusive pre-sale events or reward you with cash back on streaming services and more.
Sources: (MoneyHelper) (USA.gov)
Also interesting: We are clearly wasting too much money on these things
