Your credit rating is usually a three-digit number that indicates to lenders your ability to service a credit facility, based on your track record with your finances. If your credit rating is good then you will be offered the loan and at a favourable rate. If unfavourable you may be offered a higher rate of interest or refused the finance altogether.
Only just over one-third of the population have a poor record. To avoid being amongst this group you need to pay your bills on time for your existing financial commitments such as credit cards and other loans. This will avoid incurring penalties which have an adverse effect on your overall rating.
So how do 40% of consumers end up with a poor credit rating? It is often because they are unable to pay the money back and continue to accumulate the debt. This can lead to continued overspending with the burden of additional interest charges on top.
Some people are late with their payments. Those who ignore calls or letters from the bank will have the payment marked as “unpaid.” This information is posted on your credit report so that lenders, whom you might approach in the future, will already be wary of giving you credit.
Good housekeeping is not enough to maintain a good credit record. You have to be seen to be reducing your liabilities in order for your rating to be favourable. It is also important to remain in close dialogue with your creditors.
Borrowing money from friends and relatives to reduce your debts may seem to be a way out of your problems. The only real benefit from this is that they are unlikely to charge you any interest. If you do take this option make sure you repay them otherwise you risk losing their trust.
Control your credit card expenses to improve your credit rating. Keep your balance at less than a quarter of the overall limit. Many experts believe that this can have a key positive effect on your rating. Better still if you can pay the balance off in full regularly then do so.
As your rating improves your bank may want to increase your credit. This is a good idea providing you do not deviate from the goal to control take control of your finances.
Always check your credit rating once a year. It is not unknown for people to have incorrect data lodged in their report that adversely affects their rating. If you find anything wrong you have the right to report it immediately and have it removed. Your rating will improve following their removal.
Monitor your budget carefully to avoid overspending. Even if you have done well this year you need to keep up the good work and reduce those commitments. If you do not then you only have yourself to blame.