Ways to improve the credit score

22-Apr-2014

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Credit ratings for the basis of an individual’s financial credibility. Hence it is of great importance that one understands what a credit rating is and how does it affect their well being? At the same time one should take steps to improve the credit rating as a top priority in their life.

In the current times where economic crisis has changed the way people lived their lives, no one can afford to remain unaware of their own financial credibility. While we are all aware of our financial capabilities and the spending power along with the debts on us, we are not aware as to how a creditor would look at us when we approach them for loans.

What most of us are not aware is about our credit score and the history and the far reaching affect it has on our financial credibility. Let us understand this first. Whenever we approach any lender for a loan, they pull out a copy of our credit history and the credit rating from the bureaus. Looking at the credit score they understand whether we have been meeting our financial obligations with honesty or not.

A high credit score would show that we have been meeting our financial obligations well, paying our bills on time and can be trusted for any further loans. Similarly, our credit history tells all about the financial transactions, payments made, delays, defaults, foreclosures, bankruptcy and all that has happened with us. It also tells about the credit card payments and utilization ratio which further tells about our dependency on them. Looking at all this the creditors decide on their prnewswire lending criteria which includes the amount of loan to be approved, the tenure, interest rate and the flexibility if any to be offered in the loan repayments.

Hence, looking at the details above it is important for all to know all about their credit score and take steps to improve it well within time so as to get the best possible terms on the loans that we get. So let us look at some of the ways which can help us in the drive.

Ways to improve the credit score

Take the following Steps to Upgrade Your Credit Score

A credit score shows the sequence and composition of credit payment over time, with recent information. You can go through your credit report to know what elements are counted for your credit score.

  • Make the payment of your bills on time. Neglected and delayed payments can have a negative effect on your credit score.
  • Try to keep low balances on credit cards and other credit plans. The high amount of unpaid debt can lower down credit score.
  • Only to have a better credit mix, opening multiple credit accounts won’t upgrade the credit score. Open the credit accounts as per your requirement only.
  • Take steps to repay the debt instead of ignoring it. Do not terminate unused cards to improve your credit score.
  • Do not disclose your credit information unnecessary ,protect it from the fraud and fake practices.

Make the payments of your Bills on Time and other important points to consider

Timely payment of the bills is one of the most important factor that helps in building a good credit score. Even if the amount of debt is small, it is of utmost importance that you make the payments of bills on time. Furthermore, you should:

  • Minimize the outstanding debt as far as possible.
  • Avoid burdening yourself
  • Abstain yourself from unnecessary applying for credit

On your credit report applications for credit are reflected as inquiries, that indicates the lenders that you might be going for a new debt. It would be beneficial to use the credit that already exists so as to prove your potential to handle the credit naturally.

Improving credit score takes some time

If there is any negative particulars on your credit report, like, delayed payments, insolvency or needless inquiries, you may pay the dues but have to wait for the up gradation of credit score. There is no speedy way to fix your bad credit scores.

How changes or actions have an impact on scores?

It’s important to understand how the actions taken will have an effect on the credit score. For example, will discontinue any two of your existing accounts upgrade your credit score? The answer to this question seems to be easy but there are a number of factors to consider.

  • The information on a person’s credit report establish their credit scores.
  • Even a small change in the credit report of an individual could affect the credit score.

Closing down of two existing accounts will reduce the number of open accounts, which generally improves the credit score. But on the other hand it lowers the total available credit, which lowers the credit score. Even a single change actually affects a number of items of the credit report. Assessing what impact a specific change will have on the report is impossible. This is the reason why it is important to attach the credit risk factor with the credit score. Credit risk factors helps in determining the particulars that have the greatest effect on the credit score so that proper decisions can be taken.

How much time does it require to rebuild a credit score?

In reality you don’t upgrade the credit score rather your credit history is rebuilding. The credit score reflects the credit history of a person. The duration or the time required to rebuild the credit history depends on the actions or changes and on the particulars of the credit file. In many cases if the change in credit score is negative then it might be the effect of any negative element added to your credit report. These elements continue to have an impact on credit score for a certain period of time.

  • Delinquencies continue to exist in the credit report for a period of seven years.
  • Most of the public record items last on your credit report for a period of seven years, however some insolvency may exist for 10 years and outstanding tax liens may last for a period of 15 years.
  • The inquiries made by you remain on the report for a time period of two years.

What should I do to improve my score?

Here are some common steps that you can take to improve your credit rating:

  • Make sure that your name and address on the file is correct and the address entered is the current one.
  • Always make sure that there are no errors on your file, like another person’s debt or payment.
  • Register with your present address on the electoral roll.
  • Do not make a lot of applications in hurry for credit for credit and make the inquiries according to your need.
  • Before finalising the loan ask the lenders for the quotation in order to know the rates and then go for the one which suits you the best.
  • Convey the lenders that you are a reliable borrower by paying off the debt on time. Like owning a credit card with a high rate of interest, spending small amounts and thereafter clearing the balance on a regular time interval sot that the interest is not charged.
  • As far as possible request for smaller repayments if you find it difficult to pay a large amount at a time.
  • Terminate the credit agreements that are no longer in use.

Holding a joint finance with a person with a bad rating will have an impact on your rating. If you separate, inform the debt agencies.

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