Easy Ways To Make Your Credit Report Better
A credit report reflects your credibility, an important element that a lender takes into account to determine whether or not to sign off on your application. How well you managed your payments in the past assures your lender that you will not struggle to keep up with payments, which, in other words, means you will be charged high interest rates if your credit rating is not up to scratch.
Lenders evaluate how risky you are by going over your credit file. They do not make a decision simply based on your three-digit credit score. Despite a good credit rating, you might lose out on affordable deals because your debt-to-income ratio or credit card balance can be way high. Having a good credit score is not enough to have a decent credit file.
You need to imbibe the fact that your lender will consider your overall credit profile to ensure whether you have a potential to pay off the debt or not. Therefore, it is necessary to keep your overall credit report in good condition.
If your credit score is not up to snuff, you should try to do it before applying for a loan. It will help improve your chances of getting a loan at a lower interest rate.
Ways to improve your credit rating
First off, you need to get a copy of your credit file. Review it thoroughly to know that the information that appears on it is correct. Sometimes, you can become the victim of identity theft. After finding it, you can dispute it. It will take at least a month to get the wrong information off your credit report. You may find some errors as well. Make sure that your report consists of true information. Here is how you can fix your credit rating without further ado:
- Pay off your bills on time
Once the credit score has dipped, it will take a long time to improve. From utility bills to debt payments, make sure all payments are made on time. When on-time payments are recorded, your credit score will become better. However, bear in mind that your previous inquiries and missed payments will keep showing up there.
So, it is possible that your three-digit credit score improves after being organised with payments, but lenders will still assume you are a default borrower and, therefore, will charge high interest rates. You are likely to get a loan at affordable interest rates when your past defaults are too old. A lender will be less suspicious about your repaying capacity; however, despite that, you cannot escape high interest rates.
- Take out a credit builder loan
When your credit score dips, you should pause borrowing money for at least one year. If you take out a new loan immediately, it will make an impression that you often rely on loans to meet your needs, and hence, lenders will charge very high interest rates.
Each time you borrow money, a new inquiry will show up. As a result, your credit score will keep going down. In the end, it will become the worst, killing all your chances of borrowing money. Most of the lenders will stop accepting your application from you.
Once a few months have passed, you should try to take out a credit builder loan. It is an instalment loan and is paid back within six months. These loans are quite expensive, and the repayment period cannot exceed six months, but they will help you build your credit score, provided you pay them back on time.
Bear in mind that on-time payments will not immediately fix your credit rating because of the impact of the previous defaults and credit inquiries. However, once they are removed, you will have a good credit report.
- Do not max out your credit card
Your credit card balance is also taken into account when calculating your credit score. It is recommended that you do not use up more than 30% of the available balance. Unfortunately, many people fail to keep that limit as minimum as possible. You end up maxing out your credit card and it damages your credit score.
Your credit card provider will inform your credit reference agencies of your balance as well, and it will appear on your credit file. Make sure that you pay off the balance before it is reported. It will help keep your score from being worsened. You should never use more than 30% of your credit card balance at a time. It gives an impression that you are bad at money management and, hence, more often than not, rely on credit cards for your expenses.
You should use a credit card only when there is an emergency. They are generally effective for small purchases. Make sure you settle the whole balance first before using it to buy anything else.
- Borrow money only if it is urgent
Loans for bad credit with no guarantor in the UK can be expensive to pay off. In addition, each time you apply for a new loan, a new inquiry will be made. It will make it even more difficult to borrow money down the line. Therefore, you are suggested that you borrow money only when you need it.
For instance, if you lose your job and you come across some sort of emergencies, you may need to borrow money, but make sure you do it only when your savings have fallen short of cash and the nature of expense is urgent. If it is something you can put off, you should always try to stash away money for it.
- Do not close your old credit cards
As long as you can pay off the bills on time, there is no need to close your old credit accounts. The longer your credit history is, the better. Even if you do not use old credit cards, you should not close them just because you have to pay maintenance fees. Closing any credit card account will not only reduce the credit length, but it will also increase your credit utilisation ratio. As a result, your credit score will be hurt.
The bottom line
It is not an overnight process to improve your credit file. You will have to understand where you slipped up and come up with a strategy to figure out how to fix it. Borrow money only if you need and beware of quick online loans with no credit check. Loans without any affordability checks carry extremely high interest rates. You can fall into debt if you fail to keep up with payments. Use credit cards carefully so you do not struggle with paying off the balance.
