Unless you’re fortunate enough to have a never ending stream of money, then there will come a time when you will need to borrow, whether it’s to purchase a home or a car. Every time you fill out an application to borrow money, the lender will check your personal credit rating to see if you are a legitimate and suitable candidate for funds. The better your credit score, the more chance you have of being accepted for credit, and the better your score the higher the chance that lenders will be willing to offer better interest rates.
You should know the current state of your personal credit rating, and to check this you can revert to various credit reference agencies, Experian is just one example. Being turned down for credit when trying to make a purchase is truly a horrible experience; however there are a number of steps you can take to improve your rating:
- Make your payments on time
If you have direct debit set up for any credit that you may have then this shouldn’t really affect you as your payments will be automatic.
If you don’t then you should ensure you make any payments you are required to on time, even if it means paying just the minimum amount. If you make a late payment or if you miss a payment all together this will have a negative effect on your credit score – you don’t need to be a Financial Expert to know this!
- Know your credit score
When it comes to your credit score, knowledge is power, so it’s important to know and understand your credit report. Use a credit reference agency which I mentioned above, like Experian or Equifax to generate a report for you. You can compare what these credit agencies offer via a comparison website.
Once you have your report you can then analyse it to find any errors, if you notice any then you can contact the credit reference agency directly to have them corrected. Any problems with your credit report should be dealt with as they will impact your score.
- Close any unused cards
When lenders look at your personal credit rating, they look at the total amount of credit available to you, so even if you have several credit cards that you don’t use they will still affect your rating. Having many cards will have an adverse affect on your score, so make sure you close any accounts that you’re not using. It is understood that having three credit cards is an ideal number.
- Always stick to your credit limit
To keep your credit rating looking healthy you should always stick to any credit limits that you have. For example, if you have many credit cards that are maxed out, lenders can take this as a sign of financial stress. Try not to be close to your credit limit and this lessens the chance of you going over it, if you do then this will have a negative effect on your score.
- Make sure you have a credit history
When you apply for credit, lenders will automatically check your credit history, and if you don’t have any, how will the lender know that you are a genuine candidate for credit? It’s important to ensure you have a decent credit history, but the key is to build your credit slowly.
If you have no credit whatsoever, then just do the basics. Make sure you have a bank account, and pay your bills using your bank account on time. Also, you could consider using a credit builder credit card; these are great for building your credit from scratch as they are designed for this purpose. You need to show lenders that you can manage your finances effectively and this will in turn show them that you are a good candidate for credit.