The credit rating system is used in order for the lender to know the creditworthiness of an individual, business or organization. When improving my credit rating, it is essential to understand the merits of having a desirable rating. It could prove to be useful, as it can help you obtain good interest rates for loans, mortgages other products such as credit cards. Moreover, it acts as the deciding factor for your loan approval or credit card.
The Operations of My Credit Rating System
In the credit rating system, if one lender does not accept you as a customer, another lender might do so as each lender uses their own algorithms that determine whether or not to accept you as a customer. These lenders do not disclose the basis on which the credit score is computed, making the credit structure less transparent and less straightforward.
The 3 main credit reference agencies (CRA’s) in the UK are as mentioned below.
- Equifax (rates you out of a total of 700)
- Experian (rates you out of a total of 999)
- TransUnion (rates you out of a total of 710)
If you succeed in getting a good score with one of the main CRA’s, there is a probability that you have a satisfactory credit rating with your lender. The lender may use the help of all the 3 main CRAs to examine your credit score. However, the lender might give you a score that is higher or lower than other clients on the basis of the type of loan required.
How to Improve My Credit Rating?
There are numerous ways through which an individual can improve their credit rating when availing a loan. The three 3 credit reference agencies use an extensive variety of sources to build your credit report. The 5 strategies to improve my credit rating for a loan are as follows.
Check your credit report
Your current credit score check must be the priority before taking the necessary steps for refining your credit rating. This is done in order to ensure that all the information in your credit report is accurate. Check for these 2 main factors as mentioned below.
- Mistakes in the credit report regarding information
Even if you spot an insignificant or trivial mistake, you must inform the CRA about the same and get your file updated immediately in order to avoid any distinction between your credit report and credit application. The credit report must reflect the all facts, even the reason for the correction.
- Fraudulent activity
If you happen to detect any fraudulent activities when filing your credit report, you must directly inform the CRA about the same and get your file rectified and updated at the earliest. It may be possible that you are a victim of identity theft and reporting it these fraudulent activities is essential.
Registration on the electoral roll
Registering on the electoral roll proves your stability and helps build your financial profile. If your name isn’t on the electoral register, it may be unfavorable for you to obtain credit and could negatively impact your credit rating. You can register online or by post.
When you register, it does not mean you have to cast your vote. If an individual is bothered about the invasion of their privacy, they can opt for removing themselves from the open electoral register. The name of the individual will still remain on the register but any third parties will be unable to access your information.
Eliminate high levels of any existing debt
When trying to improve my credit rating, before proceeding with the new application, it is important to clear any existing debt. Having any outstanding debts can create a negative impression of you. As the lender is bound to be extra cautious to lend you more money. This will affect your credit rating and lender’s will deem you as an unsuitable candidate.
Make sure you pay your credit on time
If you are consistent in paying back your loan amount on time, you indirectly build a level of trust with the lender. This allows them to gauge your reliability and responsibility in your credit management and will have a positive impact on your credit rating.
However, if there are some instances where you have defaulted in making payments which has resulted in a Court County Judgement (CCJ) against you, it could appear on your credit report going forward.
Mature credit history
When improving my credit rating, a mature credit history will reflect the amount of experience in using credit. It demonstrates your prior financial credit records of responsible borrowing. Punctual payments and a low credit utilization ratio may work highly in your favor.
If you have not availed credit before, build your credit history first to improve your credit rating. One of the easiest ways is by using a credit card from the same financial company for over a period of 4 years, this can uplift your credit score over time.
In order to give an individual a clear picture of how lenders view their credit application, the credit reference agencies produce their credit score in accordance with some factors. The higher my credit rating is, the higher my possibility of getting better credit rates. Each credit reference agency has an individual scale of rating which differs from agency to agency. Therefore, the above mentioned points must be kept in mind when submitting an application for new credit.