You are using direct payday loans to pay bills on time and still your credit score doesn’t seem to improve. The free credit report you received had suggested that you have too many lines of credit open. You may have also read that closing credit card accounts hurt your score. Now what do you do?
Here is the problem. Having too many lines of credit open will raise your credit utilization rate. This rate compares your potential credit with actual balances. For instance, if you have 3 credit cards open; one has a $2500 limit and the other two each have $1500; you have the opportunity to owe $5500 on credit cards alone. You may not actually owe that much, but a new creditor will have to take this figure under consideration as it is a possibility. The more you can potentially owe, the higher the risk. The need for online direct payday loans may increase as creditors begin to reject applications.
If you truly feel that closing a credit card will help you in the long run, then you will want to close off one of the more recently opened credit cards. Longevity plays a role when credit bureaus calculate scores. The length of credit history will account for 15% of this score. The credit bureaus evaluate the ages of all your accounts and consider the average age of each one. The ones carrying the longest history of on-time payments get the greatest rewards. Closing a rewarded account will take a bigger percentage out of credit score calculations. It could end up hurting your account more than closing one which was obtained more recently.
Why are direct payday loans not included in credit score calculations?
Since direct payday loan lenders are not long-term accounts, you can now see why they are never recorded on credit reports. The loan should be paid off before it even has a chance to make a mark on the report.
If you default on your short-term loan, you can be assured that it will make it onto your credit report. It won’t be showing anything good. Bad marks remain for seven years. What was once a loan free and clear of credit history is now a big seven year black smudge. Consider this fact before you default to a payday loan lender.
Before you fall victim to both creditors and lenders take some time and rework your budget. If you cannot afford regular payments then you need to get rid of any unneeded extra. Once you can carve some money off the cost of living, you can start paying down debt and prepare for financial emergencies. Lowering debt will slowly turn your sinking credit score into the opposite direction.
With every small bit you save, it will be less needed from a third party. Shrink your credit utilization score and be on your way towards a better financial future. If you do plan on closing credit cards, take careful consideration towards their longevity, the credit limit and how much you owe. If you really need an added boost to your income, use direct payday loans in order to make the payment on time and protect your new and improved credit score.
