Expert Author Holly Petherbridge
Poor credit utilization scores are a leading cause as to what fuels applications for payday loan companies. People who are no longer able to receive new lines of credit, have had their credit limits lowered by the creditors or cannot seem to pay down on their maxed balances seek out alternative money options. The short-term loan industry is tarnished with bad reviews yet remains one of the top alternative options.
Maybe it is their simple online applications which make these short-term loans so inviting. It makes for a good day when you can apply for a direct loan in your pajamas and have it directly deposited into your bank account the next business morning. That is convenient!
In all its glory, these fast payday loan direct lending companies have made it easy for those who should be looking at cutting back on their expenses and lowering their debt. Instead of solving the problem of having poor credit, people seek out quick fixes. Before any more third party money is used, credit utilization rates should be understood.
Credit utilization rate is based on the ratio between how much you owe creditors and how much you could potentially owe. Take all of your credit card statements and set them on the table. Get yourself a calculator and find the sum of the outstanding balances for them all. This is your aggregate credit card debt. Next, go back through your statements and find the sum of the credit limits. This will tell you that if you charged every penny on each card, you could potentially be that much in debt. Finally divide the aggregate debt by your potential debt to find your credit utilization ratio. The higher your score, the worse shape your credit score is in. Since this ratio is used as approximately one-third of your credit score, it should be taken very seriously.
Individuals do have control over what direction their credit score moves. If you are looking to improve your number, then it is good to start by looking at the real scenario. How much is your take-home income each month? What is your total budget for monthly expenses? Is there anything left-over? What would be the best use of that money?
Besides spreading the extra out among paying off a priority debt you also need to think about saving some for any upcoming emergency. Why save and pay debt at the same time? It's a good question. Many people like to place it all on a credit card in order to quicken the payoff pace. It seems like a great idea, but it won't protect you from future money emergencies. If you don't create a savings simultaneously, the next unexpected cost will end up back on the card diminishing some of your hard work. Using credit cards or applying for small loans with responsible payday loan companies on line may seem like a good solution at the time. In fact, for some people who have not built up enough savings to cover the extra costs, having these options can help save the day. The trick here is to only use what you absolutely have to use. Use what you have already saved and juggle what you can from non-fixed budget categories (i,e. groceries fuel, clothing). This way you can borrow the least amount of third party cash.
If you still have access to credit or know you will be approved by a direct lender for a short-term loan, be thankful. There are many in your same situation who do not qualify for either.
Tackling piles of debt isn't easy, but it can be done. Make a plan and stick to it. Find other ways to raise the extra cash you need instead of reusing your credit line. Limit your payday loan lender usage in order to safeguard your future budgets.
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