A credit rating is a good indication of how a standard lender might look at you if you applied for a loan. When you apply for money, every lender attempts to predict future behavior based on how you’ve acted before. To do this, the banks and other companies look at lots of different information.
A credit report or rating is a culmination of all the information a company needs in one place. This data highlights how many loan applications you’ve made recently, as well as how much you owe, what credit products you’ve had, and whether you paid them on time.
The world of credit ratings isn’t as simple as it seems, unfortunately.
If you think you may not have the best credit score, but you’re keen to apply for a loan, then the following advice could help.
Credit ratings aren’t just there to tell lenders if you’ve made mistakes. The whole point is to help the lender predict future behaviour. That’s why no credit score is often just as bad as a poor rating. If you don’t have a lot of experience with taking out loans or borrowing money before, then you can’t prove that you’re a good investment.
It’s not just people with a bad financial history that need to improve their credit score. Everyone should work on constantly developing their rating, so they can have the best possible chances of success. Remember, your credit report both determines whether you’ll get a loan, and it also indicates what kind of products you’ll get.
In recent years, the credit landscape has shifted drastically towards rate for risk. This basically means that every credit provider on the market uses your credit file to dictate whether they’ll give you credit, and what interest rate you’ll get. Only around 51% of customers get the rate advertised on a loan.
Credit ratings can affect the length and size of a loan too. For instance, you may not be able to borrow as much money as you’d like if you haven’t got the best credit score. Alternatively, your lender might tell you that you can borrow that money, but only if you can pay it back quickly.
The first step in improving your credit score, is deciding that you actually want to make a change. If you’ve got a poor credit history, or no credit score, starting as soon as you can boost your chance of lending opportunities in the future. Here are some top tips to get you on the right track.
Credit cards can seem dangerous when you’re trying to protect your finances, as they are a way of borrowing money. However, they’re actually more helpful than you’d think. Accessing credit in a way that’s responsible and regular will boost your credit score significantly. Starting to spend small amounts and paying your bill each month makes you more attractive to lenders.
Ultimately, using small amounts of credit and paying back what you borrow proves to lenders that you can manage your money responsibly. For a better credit score, make sure that you don’t use too much of your available credit though. You’ll need to keep your credit utilisation at under 30% of your limit to show lenders that you’re sensible with your money. Using too much money too quickly will boost your chances of a problem with credit providers, as they might think that you’re taking advantage. Don’t rush in with a huge request.
One of the first things you can do to boost your credit score (without borrowing money) is to sign up for the electoral roll. The electoral register might not seem like it has much to do with credit initially, but it can boost your chances of being accepted for loans, because agencies can verify your information and determine who you are.
Aside from signing up for the electoral roll, it’s also worth looking into your report and seeing if you have any mistakes that need to be corrected. If the information here isn’t accurate, then your credit score will suffer. Checking your report regularly makes it easier to spot and remove any mistakes. You’d be surprised how easy it is for mistakes to make a difference when applying for a loan.
Whenever you apply for credit, the company you apply with conducts a hard search on your account. This leaves a mark on your credit report that lets other lenders know you’ve asked to borrow money. If you make too many applications for credit in a short time, this negatively impacts your score, and make sit harder for lenders to consider you for cash.
Although it might be tempting to apply for as many loans as possible one after another, slow down. If you’re rejected for credit the first time, take a break, and then try again. Before you do make that application, it’s helpful to check your credit situation and see what your score looks like. A soft search should be enough to give you a basic idea of your score without darkening your credit file.
You can also look at lenders that conduct eligibility checks before they do a hard search of your file. This will boost the chances that you won’t get any marks on your report if you’re not approved for a loan. You can check out the terms and conditions of each lender when you’re browsing online and see what kind of strategies that they use to help defend your score.
It’s important to show the credit agencies that you can use money responsibly. Utility bills, such as a gas or electric bill are a great way to start building credit. They show the credit groups that you can pay your bills according to a set schedule.
If you don’t currently have an account in your name, then you might need to look into other bills that you can pay. Remember, just contributing to the costs of your household isn’t enough. The money has to actually come out of your bank account. Shifting a few bills into your name might be a good idea if you’re living with someone who has better credit and doesn’t need the extra points.
It’s also important to ensure that you’re paying your bills on time. Once you move the information over to your account, set up a direct debit so you can avoid any unnecessary fees or problems. It’s a good idea to arrange for the direct debit to come out as soon as you get your wages. This will reduce your chances of missing any payments.
It’s pretty rare to get to a position where you’re dealing with things like identity theft and fraud these days, but there’s always a chance. If you fall victim to this issue, this could significantly damage your credit score, and it also means that you become responsible for the credit actions of another person.
Although you can’t necessarily prevent fraud from happening to you, there are steps you can do to protect yourself and reduce your risk. For instance, make sure that you don’t give your sensitive information to anyone – even the people that you think you can trust. You should always make sure that you’re actually speaking to a bank before handing over account details too.
Checking your credit report regularly should help you to see the signs of financial fraud quite quickly. You’ll notice if someone is trying to open a credit account in your name or apply for a loan. If you think that you have been a victim of identity fraud, it’s important to get help as quickly as possible. You may be able to remove some negative marks from your report this way.
Ultimately, the best thing you can do for your credit score is keep track of it. Most people don’t think about their credit rating and what it means to their chances of getting money in the future. We tend to forget about credit scores until we need them for something, like getting a new car or a mortgage.
However, if you start a habit of understanding your credit, and managing your finances early on, then you’re more likely to maintain a solid credit score throughout your life. If you’re not sure where you stand with the credit agencies now, start by reaching out. There are plenty of companies that can give you a look at your credit score for free.
Many of the credit score companies on the market today can also offer advice on the things that you can do to improve your credit rating. Once you know where your score stands, work on both preserving and improving it, by meeting your repayment requirements, and following the tips outlined above.