If you are trying to get a loan or a credit card then you might suddenly become very aware of your credit rating. Your credit rating is a measure of your financial reliability and banks and lenders will use this informatively in order to help guide their decisions regarding your loans. If you are struggling with debt problems then you may need debt help in the form of a loan, and you may need loans to help you with your property and vehicle financing. However the unfortunate irony is that those who need debt help the most and with the most debt problems are the self same people who will not be able to get it due to their bad credit rating. At the same time any loans you do manage to get are going to be more expensive.
The question is then – how can you go about improving a bad credit rating and then get the loans that you so desperately need? Here we will look at how to improve your credit rating and so be able to get the cheap loans you need. First though it will help to understand what your credit rating is and how it works.
Understanding Your Credit Rating
Essentially every time a bank or company gives out a loan they are investing in you – just as you might invest in stocks or shares. The idea of this is then that they give you some money for your car or your house, and they then expect you to increase in value over time so that you can pay the investment back with interest. In other words, your financial situation is of interest to them because if you don’t do well you might not be able to pay them back. Just like you and me, loan companies need to make money from their investments and they can’t afford to keep insuring people who are going to go bankrupt and be unable to pay.
Thus the credit rating is a tool used within the industry to help ‘guide’ investments and ensure that companies invest in the right people and make a profit. The way it works is to look at your previous financial performance and then to note this down. In other words, if you have paid back all your loans on time throughout your life and you’re rolling in dosh, then you are likely to have a good credit rating that helps you to get cheap loans and unsecured loans. On the other hand though, if you have constantly made late payments and you’re already in a lot of debt, or if you have bankruptcy in your financial history… then you are going to make a rather bad investment and your credit rating will reflect this meaning you can’t get cheap loans. You basically are earmarked as a bad investment.
Tips to Improve Your Credit Rating
Knowing this then can help you to learn how to change your credit history and start being able to get those cheap loans. The basic idea is to show to the banks and other lenders that you are capable of paying back your loans and that you are therefore a good investment that can make them a profit.
Pay Off Existing Loans: The first thing to do is to pay off any existing loans. If you are in a lot of debt, then your credit history will be poor. However if you can now pay all of that debt back you will improve it again to the point where it is much better than it was initially even. This is because you have shown that you are able to get into debt and then get out of it again.
Reduce Your Debt: If you can’t pay off all of your current debt then there are other things you can do to at least improve your situation. For instance if you use debt consolidation you will be taking out a single loan in order to pay off your others. Go careful with that, but if you do it well this can be a great way to show you can pay off most of your loans. Another option is to just pay off one or two of your smaller loans if you can which will all help.
Take Out Loans: ‘Wait a minute!’ I hear you say… ‘You just said to pay off all your existing loans! What’s going on?’. Well, the thing is I also said that once you had paid off those existing loans you would then have a better credit score than you would have if you had never taken out those loans. In other words, if you take out loans and make sure to pay them back then you can boost your credit score. If you take out small cheap loans then you can do this. Otherwise you can do this by taking out a credit card – because all a credit card is really is the ability to take out a number of cheap loans that are very small with no application process. So use the credit card regularly and make sure to make all your repayments on time as well.
Change Bad Associations: Sometimes your credit history will be bad but it won’t be your fault. This is the case for instance if you live with someone who has a bad credit rating. That then means that to immediately improve your credit history in these cases all you need to do is to move out (or get them to). Sometimes though that won’t be enough and you can find that you are still ‘connected’ financially to people who have once lived with you or who have once shared an account with you. You need to then ring up and ask to have them removed from your credit rating in order to return to normal.
Chris works with a car insurance website. You can visit their site to learn more about different policies.