How Can I Improve My Credit Rating

 

We pride ourselves on our glowing credit rating, don’t we? That number which determines whether we can obtain credit for everything from a credit card, through to a washing machine or car on finance. To most people, our credit rating is vitally important to how they live their life. So it’s important to know how you can improve your credit rating if necessary.

From the rate at which we borrow money on our mortgage through to being able to buy products now and pay later, the credit score does in fact make a difference. Without a good credit score a mortgage application could be rejected, a shop could reject you for finance for things like a TV or computer and car dealerships could turn you down for a new car because your credit score isn’t high enough.

Credit Scoring: What’s in a Number?

Credit rating adviceA credit rating is determined by your previous finance experience. It’s often funny to hear stories about people who have never borrowed any money before being told their credit file is poor.

” How can that be?”, they say.

It’s because a credit referencing agency can’t measure a person’s credit worthiness if they haven’t borrowed money and repaid it on time before. I recommend every 18 year old applies for a credit card as soon as they can. There are two reasons

Reason #1: Responsibility: An understanding of how a credit card works is important – it’s one of life’s lessons. Credit must be understood and respected. The more we understand about credit and debt, the better prepared young adults can be at making decisions. Borrowing money and repaying it on time should become a habit and parental control should be provided at a young age.

Reason #2: Credit score: The credit score for the 18 year old will improve as they borrow and repay money. The interest rate on their first card will be high, however once they pay the money back, their credit score will improve and they can apply for a better interest rate. This will place them in a positive position for the future.

How to Damage a Credit Score

Sadly, it’s very easy to damage your credit score.

A failure to repay credit shows that financially you are not trustworthy. It doesn’t matter the reason for failing to repay, but if you break the terms of the agreement your credit agency can place a default on your credit file. You cannot remove the default, instead it will be deleted after 6 years. If you feel a default has been added incorrectly then you can challenge the credit referencing agency or the credit company.

Usually, if you’re late in paying a credit agreement you will be given a warning or two before the default is added. We can all forget about payments afterall! However, continual forgetfulness could mean your credit score is impacted.

If you’re having financial problems and think your credit score could become damaged you should speak to debt advice charities – they can help protect your credit file in some instances.

Tips to Improve Credit Score

I’ve got some tips which I used to improve my credit score after resolving my debt problem. For instance,

1. Don’t Guess: You can waste your time thinking you have a great or poor credit score. It’s easier to apply for your credit score than guess, plus much more accurate! The three main credit referencing agencies are Experian, Equifax and Call Credit. You may have to pay a little money for your credit report but it’s well worth it.

2. Review: Once you have your credit score you can improve it by reviewing what’s on there. Any discrepancies should be reported to the credit referencing agency so they can update your file. After they update your credit file your number will improve

3. Defaults: if you have a default on your credit file then it should last for 6 years exactly. After the 6 years it should automatically be removed. If it’s not been removed then you can ask for it to be deleted.

4. Damage repair: A damaged credit report won’t remain this way for every. As mentioned above, in 6 years defaults are removed. However, there are certain things you can do to improve your credit file. The credit score you receive is a reflection on your risk (how likely you are to repay money). One of the best ways to show you’re credit worthy is to apply for a credit card and use it! I know, controversial to suggest taking out a credit card with a poor credit rating. However, the caveat is this. Your credit rating is poor so you can only afford the most expensive credit cards e.g. 28% APR! So, you must spend on the card (£300 per month for grocery shopping) and pay it off, IN FULL, as soon as the bill arrives. That way you’re borrowing and repaying immediately, improving your credit score and avoiding interest charges.

5. Disassociation: You can have a negative credit file because you are associated to somebody else, like a partner. For example, if your partner owes £20,000 in debt and you owe £0 then your credit file can still be harmed because you have joint debts together, e.g. a mortgage. You can apply to be disassociated and in turn protect your credit score.

 

What are your experiences of credit scores? Is your credit score good or bad and what tips do you have that could help others?

 

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John The Bankruptcy Guy

As an ex-bankrupt, John has experienced the highs and lows of credit. It's with this knowledge that he writes Debt Advice Resource - to help others avoid, or navigate out of, the pitfalls of debt.

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