How To Improve Credit Rating
Credit rating is in lay man’s terms the measure of the credit worthiness of a person based on his credit history which is assessed by a lender or creditor before approving the mortgage or loan of the said person. The credit history tells the lender about the person’s past borrowing, repayment, defaults like late payments and bankruptcy charges if any. On the basis of this a rating is given to the applicant of the loan. There is no universal measure for this rating and it varies from country to country and organization to organization. But keeping a close eye on your credit rating will ensure you won't need debt help as you'll be on top of your finances.
Based on the past spending and saving patterns of the individual a company or lender has the right to approve or disapprove of a loan. When lenders like banks or established creditors start to ostracize you, you can be sure that it might have something to do with your credit history. This is not a hard and fast rule as sometimes banks will also turn down what they believe is not a profit or return giving ventures. There are websites like Experian and Equifax which let you check your credit history for a small charge.
A bad credit rating impacts you on all fronts as even sub-prime lenders (2nd tier lenders) will only approve your loans at a much higher interest than what you would normally have to pay further adding to your monetary worries.
This great thing about credit rating is that it is repairable. Some primary basic steps would be to check your credit file to make sure all the debt and other financial defaults accounted into your name are truly yours. Other methods are:
- Electoral roll – If you are registered in the electoral roll in your current address, then the creditors take this as a plus point on your side. Creditors use this to check your true credentials while applying for a loan.
- All in the family – not just you, but make sure all in your family also do not default on payments. If you have an ex-spouse who is on your account, who is a defaulter, remember to take them off your account as this too will affect your credit rating
- Space it out – Do not take out too many loans or mortgage and credit card applications one after the other for fear of rejection. The more rejected ‘footprints’ you leave, the worse your credit file looks to creditors.
- Earn trust – In order to establish trust in the world of, apply for a credit card albeit at a higher interest and pay off spending on it on time without any defaults and outstanding payments. This will show your prospective lenders that you can be trusted
- Shut it down – Close any unused accounts as even dormant accounts affect credit ratings
- Miscellaneous - Make sure closed CCJs(County Court Judgments) are reported on your file. Keep credit card balances within 30% of the limit. Keep a keen eye out for identity theft or fraud on your account.
These are some of the basic steps to help improve credit rating and make your case favorable to lenders.