Imagine going to get a loan only to be turned down due to your credit rating. This happens to individuals every day, as knowing about credit ratings can be a daunting topic to look into.
Fortunately, there are ways to improve a credit score, but there are also many myths surrounding how to do so.
Consumers need facts, not misinformation. Read on to find out some simple ways to help your credit score rise.
Understanding Your Credit Rating
First and foremost, understand that consumers have more than one credit rating. Lenders have different scoring systems, and they don’t share information about their system with consumers.
As a result, a consumer who is rejected by one company may not be rejected by another. However, the systems do tend to be very similar, so a person may feel as if they have been put on a black list and there is no hope.
This does not mean a person can’t get credit. It simply means they may need to turn to a higher-risk lender in this situation.
Credit Rating and Behaviour
When determining a person’s credit rating, the lender looks at the past behaviour of the borrower to predict their future behaviour.
By changing one’s behaviour in a positive way, a person will see their credit score rise.
The question is determining which behaviours to focus on first to bring the credit rating up quickly.
1. Pay Off Small Balances
Always pay off any small balances on loans or credit cards before applying for new credit. Lenders look at a person’s overall financial situation when determining if they are a good risk.
Furthermore, a person with high levels of existing debt is considered a higher risk than someone with little debt.
However, a person with numerous credit cards with no balance may be considered a higher risk also.
This is because the person may take out a new loan and then run these credit cards up.
This would significantly increase the person’s debt and may lead to him or her being able to pay the new loan as agreed.
2. Fraudulent Activity
Consumers often neglect their credit rating until they wish to take out a loan. In fact, it takes the average individual ten months to discover he or she has been a victim of fraud.
Check credit card and bank statements every month to identify any unrecognised activity and report it immediately. The sooner action is taken, the less impact it will have on a person’s credit rating.
3. Look for Errors
Mistakes on a credit file are more common than people realise.
An address that is only one digit off can negatively impact a person’s credit rating. Furthermore, be sure to review the file at each credit reporting agency, as the information may be different across the reports.
At a minimum, review this information once a year to catch these mistakes promptly.
4. Avoid Payday Loans When Possible
Taking out a payday loan with the idea that this will increase your credit score is an unfounded rumour that gets thrown about.
Occasional payday loans shouldn’t hurt, especially if a person has a good credit history otherwise.
However, do not overuse this resource, as doing so could damage your credit rating if you end up not making your repayments on time.
5. Build a Credit History
Those who have never borrowed money before may be surprised to find they have a hard time doing so.
Lenders regard little credit history in a negative light, as they are unable to predict the future behaviour of the borrower.
Individuals in this situation should obtain a credit card, use it for small amounts each month and pay the bill in full every month.
6. Request Quotes
People often apply for multiple loans or credit cards in a short period of time to find the product that works best for their needs.
Doing so tends to be a mistake, as each application lowers the person’s credit score.
Request quotes before applying to compare the various financial products.
A quote has no impact on a person’s credit rating and will provide the information needed to make an informed decision.
7. Stability Is a Factor
Individuals often aren’t aware that lenders want to see stability when they review an application.
A person who moves from place to place or someone who switches jobs every six months will be riskier than someone who has a stable background.
Although it may not seem fair, lenders do look more favourably on those who have a job as opposed to being self-employed, those who own a home rather than renting and those who have lived in the same place or used the same bank for an extended period of time.
8. Register to Vote
One easy way to improve your credit score is by registering to vote and appearing on the electoral register.
This register provides information on who is eligible to vote at an address, and having your name appear on this list ensures the actions of the previous tenants of that address don’t negatively impact you.
Doing so is easy and has a positive impact on your credit rating immediately.
9. Pay Your Bills in a Timely Manner
Lenders look at the payment history of a person when determining his or her ability to repay the funds being requested.
Make sure to pay your bills on time to boost your credit rating.
Even one missed payment can be detrimental to your credit score.
If you worry that you may miss a payment, set it up so that the money comes automatically out of your bank account.
This ensures the bill is paid, no late fees are incurred and your credit score isn’t damaged.
Pay attention to your credit rating. Even individuals who never use credit need to ensure their rating is as high as possible. If you have had credit problems in the past, don’t despair. Use the above tips to improve your score, and you should find that lenders are willing to work with you. In addition, a good credit rating ensures that you get a great rate when you do obtain a financial product. Check your score today and begin repairing any issues, so you get this benefit the next time you go to obtain a loan or credit card.