First thing first, your credit rating needs to be positive! But what good is a positive credit rating? Your credit rating is the only thing that creates a long term relationship between you and your lender. It helps you obtain credit on suitable terms and condition. If you are a risky borrower then you will face difficulty in finding a lender of good reputation and secondly you will get loan at higher interest rate.
At this point a question might come to your mind “What can I do to improve my credit scores?” Here are ten tips to how you can improve your credit rating.
1 –Analyze your credit report.
Your credit report contains all the information on your credit history, whether sued or faced bankruptcy. Any lender would read that information very keenly before giving you an advance. So, it’s very important to check your credit report. Any errors or miscalculations can put a bad impact on your lender. Errors may result due to following reasons:
- Data collected from creditors or other public resources may be inaccurate
- Credit rating agencies can cause some errors in the compilation of data.
It’s important that you inform the credit bureau about the information you find inaccurate. Identify the errors and explain the reasons for those errors. Finally, request the bureau about the correction or deletion of those errors.
2- Follow the budget.
You can’t get good credit score if your expenses are more than your earnings. Create a spending plan. Here are some tips that can help you develop a good spending plan:
- Include how much you can earn a particular month.
- Add what are the expenses for that month.
- Calculate remaining amount by subtracting earning from expenses.
- Subtract extra expense, if any.
- Try to build some cushion for your emergency expenses.
3- Know your credit limits.
Don’t borrow too much that can lead to a situation where you can’t pay it back. Here are some factors to be considered:
- Do not use full amount of your credit limit. Keep some amount in surplus that will give a positive impression to the lenders that you are not having troubles with repayments.
- Use different types of credit limit. That will give an impression to the lender that you can handle different financial situations.
- Strictly following your budget. That will help you remain within your credit limits.
4- Follow Your Payment Schedule.
Paying in time for all your credit card as well as utility bills will give a strong foundation to a good credit score. Here are some tips for that:
- Carefully read the due date when the statement arrives. Due date is normally the same every month so it becomes easy for you to remember.
- Paying online will speed up your payment schedule.
- Your credit card companies can send you SMS alerts when your payments are due.
5- Negotiate with your lender.
Bargain with your debt collector about settlement of your debts. Get in writing whether you are going to pay in full or settle the remaining balance for less than full amount. This step will not immediately affect your credit scores but it will make you stop worrying about your debt.
6- Choose Secured Cards or small loans.
These are easy to get as they are backed by the security deposit. When you will close the accounts you will get the amount back, so it is important to manage these accounts carefully. However, there are some other factors to consider:
- Carefully analyze the requirements of your lender. If lender denies your application you can ask for explanation.
- You may get the guarantee of your friend or relative who has a good credit history. It will increase your reliability and you may get loan with lower interest rates.
7-Beware of your finance charges.
Avoid unnecessary charges on your credit cards. Use the credit card in case of need and make sure you can pay it back. Keep some balance left in your account to make sure that account information is reported accurately to the bureau agencies.
- Your credit card should be free from annual service charges. Go for those companies that don’t charge this.
- Try to clear your dues in the first time payment. It will help you to avoid penalty charges.
- In case of using small loans be careful of the prepayment penalties and simple interests.
8-Improve your collateral.
Lenders calculate your net worth by calculating your assets and liabilities. In case you don’t pay the credit amount back, the lender will recover that sum from your security deposits. You will get good credit at lower interest rate if your net worth is positive. Your car, house or the saving account is the thing that the lender can demand as collateral. Accurately determine the value of your collateral, especially buildings and plots. The value of real estate is usually considered more than the value of cars or vehicles.
9- Remove tax lien.
It is another way to build good credit. Tax lien is a governmental tax against your assets, if you do not settle your debts. If there is a tax lien on your credit due to some tax debt, it is important to remove it from your reports. If you remove this lien your credit score will improve quite significantly.
10- Be positive and be careful.
After facing credit problems you may not be availing credit again. But be cautious and careful not getting into overheads again. Look into some factors before availing credit:
- Improve your earnings through a proper job or a sustainable business.
- Check the credit rating of your lender, especially in a short term period.
- Once your earning improves try to get credit cards at lower interest rate and with least service and financial charges.
- Avoid late payments that will not help you fix your credit issues. A single late payment can cause a significant drop in your credit score.
- Prepare repayment schedule. This schedule will help you calculate interest expense, principal amount remaining and number of installments left.
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