MoneyMagpie

Feb 15

6 Ways To Improve Your Credit Rating

Your credit score is a very important piece of your identity – financial and social. A lot of transactions you need to carry out, including getting loans, getting a car, renting a house, etc. are based on this one number that defines who you are in the eyes of so many institutions.

But why is your credit rating so important?

Your credit rating is essential because it is a reflection of your financial behaviour and every financial move you make. Every step, such as opening a new credit card, or paying your bills late, or paying loans early, will impact your score. This is how a lender or another institution knows whether or not you are a responsible individual and how likely you are to be able to afford a loan or rent, etc.

1.   Pay off previous debt

The first thing you need to do, and one of the most effective methods, is to pay off any outstanding debt. If you have any personal loans that you defaulted on, or payments that you’ve fallen behind on, paying it all off can have outstanding effects on your overall credit score. Nothing drags your credit down more than unpaid debt, so paying it off will have an immediate and very noticeable positive influence.

2.  Get rid of store cards or unnecessary credit cards

Raise your hand if you’ve got store cards at all sorts of places. Remember that when a shop offers you a credit card, they are not doing it because they have your best interest in mind. What you need is not more debt, so you should always decline their “generous” offers for store cards.

The most responsible thing you can do is to pay them off and close them, and the same goes for any additional credit cards you may have. You don’t need multiple credit cards; just one will suffice. You will be shocked at how much your score can improve once you get rid of all of those unnecessary cards. Not to mention how much easier it is to manage just one source of debt, instead of multiple.

cutting credit cards with scissors

3. Pay your bills on time

Along the same lines, falling behind on your bills will have a very negative effect on your score. However, consistently paying off everything on time and reliably will pull your credit score up and help you maintain it. So, any bills such as rent, phone plan payments, council tax bills, etc. should be paid on time, or even before in order to maintain a great score for you. We’ll talk more about it in just a minute.

4. Avoid applying for loans unless you know you will be approved

Did you know that being rejected for loans you’ve applied to can severely – and negatively – impact your credit score? That’s right; every time you apply for a loan and you don’t get accepted, that is a mark on your rating. If you want a loan, or if you want a new line of credit at the bank – a rejection for any of these things will reflect negatively upon you.

That can push you into vicious circle where you need bad credit loans, so you take a risk, but you don’t get accepted, which in turn, lowers your credit even further and makes it even more difficult to be get accepted for a loan.

The way to get around this sequence of events is to do what is known as a “soft search”, which is a simulation of sorts where you can check whether or not you would be approved for a loan, but without applying for real, so your credit score is not affected by the result, be it positive or negative.

5. Set up direct debits

And speaking of paying regular bills on time, a very reliable way of doing it is to set up direct debits. That way, it takes the pressure off you to remember to pay everything before their respective deadlines. All you have to do is go on your regular online bank account and set up direct debits for all of your bills and just let them get paid automatically. That way, you ensure that everything is paid off with time to spare and your credit score will reflect your reliability and ability to stay on top of your bills with no problems.

woman setting up computer payment

6. Take out a loan that you can reliably pay off

Ironically, what you can do to actively improve your loan is to actually get a loan – yes, going into debt will increase your score instead of damaging it. However, in order for it to help, you have to be sure that you can stay on top of all the payments you have to make. The easiest way to do it is to set up a direct debit to pay off instalments regularly and consistently.

You see, when you pay off a loan on time and with zero issues, you demonstrate that you are responsible with your finances and that you can be trusted with a loan. That is why sometimes getting a loan can actually be one of the best things you can do, in order to create a positive financial track record that lenders can rely on for future financial transactions you may need.

In conclusion, there are several things you can do to make sure that credit score is getting better and not worse. It’s all about ensuring that you are being as financially responsible as possible and doing everything you can to show lenders that you can be trusted to borrow money from their companies. All you need to do is take some simple measures to keep you on the right track.

 

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