Thinking about your credit rating can be daunting: what does it mean? What affects it? If it’s low, how does that affect you?
There are many sources of information out there, but sometimes they are urban myths, or semi-truths that don’t really reflect how credit ratings work. In this article we are going to briefly outline how your credit rating affects you and some great tips you can do to improve it.
I like to look at my credit rating like a dating profile, but instead of trying to attract other people, I’m trying to get banks to lend me money. Even if you’re applying for a new phone line to be installed, the company will run a credit check. They want to know how risky of a client you are, will you be paying back the money you’ve borrowed on time? Will you be able to keep up the repayments on your mortgage? Would you lend money to somebody if they had a history of never paying it back to somebody else? This is why having a good credit rating is important for your financial future.
What can I do to improve my rating right now?
1. Review your credit report
The first thing you have to do is identify the reason your credit score isn’t as high as you’d like it to be. It’s not always apparent why your credit is damaged, fortunately though the answer can be found in your credit reports.
Each persons credit rating is based off the contents of their credit reports. If there are errors in your report, it can damage your credit rating quite substantially. If when looking you identify errors, you should immediately start by disputing the information with the credit reporting company. Any documents you have that can back up your claim, as well as a detailed explanation of why you think it is wrong are essential. You should also request the information be removed or corrected and enclose a copy of the part of your report that contains the mistakes, highlighting them.
2. Get rid of your unused credit cards
If you have access to many different lines of credit, as well as the amount of debt you owe, lenders may consider this when deciding on your application. If you have unused credit cards lying around, it can make you look like less of a viable candidate to lend to. This is due to the unused credit cards restricting your credit history and them having nothing to go on when considering your application.
On the other hand, if you have many active credit cards that are all maxed out, it’ll look like you’re a liability when it comes to paying it back, even if you usually pay it back on time.
If you want to show lenders that you can be trusted with a line of credit, do not exceed 70% of your credit limit and only have a few credit cards that you use regularly.
3. Pay off your debts as soon as possible
Once you have cancelled unused credit cards, or reduced the amount of cards you have, it way easier for you to manage paying off the debt you’ve built up. You don’t need to pay it off all at once, paying the minimum on a debit card with a little extra on top will guarantee that you’ll never be late with basic payments, this will also show that you have the flexibility to pay more to clear debts quicker. After a few months this will start to show lenders that you are responsible with a line of credit, making you a more viable candidate.
I know having a credit card makes it tempting to buy things you usually wouldn’t be able to afford, but for the foreseeable future, only charge what you can afford to pay every month in full. This will allow you to stay on track and get your credit rating boosted!
4. Sign up to the electoral roll
This is one that surprises some people, but it really makes a difference. This will make it way easier for lenders to confirm that you are who you say you are and that you live where your application says you do.
If they do a search for you on the electoral roll and cannot find you, it will make it very difficult to get any type of credit, it’d be like applying for a job without a CV. By doing this, you will guarantee adding around 50 points to your rating and it’ll only take you around 5 minutes to complete the application.
5. Be patient
Once you start to see your credit rating improve slightly, refrain from applying for all of the mortgages and credit that you’ve been waiting for. You could still be declined, and applying for many different lines of credit at the same time could hurt you in the long run. Build a new steady credit history, where lenders can see you are responsible and you can be trusted.
Negative information on your credit report remains for 6 years, showing lenders that you’ve realised you need to start being smarter with your credit will make you much more attractive as a client to them. Be patient, take your time, and apply when you can really see a difference in your credit score.
If you have any questions, please do not hesitate to contact us here.